Drink In These 5 Top Stocks

Our 140,000-strong CAPS community -- where members give the
thumbs-up or thumbs-down to some 5,300 stocks -- seeks businesses it
thinks will outperform the market.
Below, we'll take a look at some of the most popular and talked-about
stocks in the CAPS universe, and examine whether you think they'll
continue their winning ways.

A tall drink of water

Going short on a stock
is always a risky gambit that should not be undertaken lightly. You
need the right fundamentals in place to pick a stock to bet against --
because, as noted economist John Maynard Keynes once said, the markets
can remain irrational longer than you can remain solvent. Exuberance
can push stocks to dizzying heights long after the investment bubble
should have burst.

Last week, we discussed the dangers
surrounding the UltraShort S&P500 ProShares ETF, and this week its
real-estate cousin has appeared on our radar. The risks involved in
using these leveraged ETFs are more manifest in the UltraShort Real Estate ProShares
fund, as the class-action lawsuit against it highlights. The plaintiffs
make the case that the degree of risk it poses was never properly
identified, since the Dow Jones U.S. Real Estate Index (which the ETF
is based on) fell more than 39% in 2008, but the leveraged ETF -- which
should theoretically have returned somewhere north of 78% -- actually lost more than 48% during the period.

As we noted last week, these ETFs don't bet on the underlying stocks; they're not holding Annaly Capital or Simon Property Group (NYSE: SPG)
as the index does. Instead, a fund like this uses a complex system of
financial instruments such as swaps and futures to achieve the negative
return. Perhaps that is what caused top-rated CAPS member mattdaddy21 to call for the ETF to outperform the market as he substituted bearish sentiment on real estate generally with the workings of this fund specifically:

When the first time home buyer credit expires, the
real estate market will tumble quickly again. This will help push us
along into our second dip of recession. The buyers will dry up. Why?
What about great deals on foreclosures? Sure, existing home owners
could put in offers on a foreclosure, but they can not have a sale of
home contingency. So who is going to buy their current home??

Yet as the ProShares fund itself says, because it's looking to double the inverse of the index's return for a single day,
investors may need to monitor their holdings on a daily basis as well.
That's just too frenetic for Foolish investing, and it's why I wouldn't
recommend using a leveraged ETF to play a bearish position.

What's in your wallet?

It's easy to hate
your credit card issuer. After all, while it might have provided you
access to easy credit to finance your lifestyle, it clamped down on
your extravagances at the worst possible time. Credit card companies raised rates and boosted minimum monthly payments just when you needed the extra cash in your pocket. But should we really be mad at Capital One Financial or American Express (NYSE: AXP) for getting religion on prudence? We should expect -- if not demand – that a business tighten the reins when conditions warrant, and it's hard to argue that conditions haven't been ripe for a return to rational lending standards.

Capital One turned its first profit in a year because it took those
necessary steps, including a "repricing" of its cardholders. Yet the
situation remains fluid because delinquencies and charge-offs continue to rise, and with half its business in credit cards, the pending Credit CARD Act in Congress could bite this credit card issuer hard. That helps explain why CAPS member jed71 thinks Capital One is over its limit:

CC defaults still continue to rise, reserves will
have to increase substantially given foreclosures / bankruptcies have
not yet reached their peak. Don't expect anymore positive surprises in
the coming few quarters. This one has a big leg down coming very soon.

We might enjoy a bit of schadenfreude at Capital One's
expense, but what do you think about it as an investment? Let us know
in the comments section below whether this credit issuer is in your
wallet, then head over to Capital One's CAPS page and rate its ability to outperform the market.

Gather 'round

With so many good opinions about today's top companies, why not grab a pointy paper cup from the dispenser and join us at the Motley Fool CAPS
water cooler? Your input can help guide other investors to stocks with
bright prospects for growth. Read a company's financial reports,
scrutinize key data and charts, and examine the comments your fellow
investors have made, all from a stock's CAPS page.

© 2009 UCLICK, L.L.C.