Five Spot: Lirola Sees 'Too Much Bullishness'

What is your top "beneath the radar" or "sleeper" stock pick?

Lirola: FCStone(FCSX Quote) is our favorite sleeper stock. This commodity adviser/broker trades at its cash value of $90 million. Yet, it currently earns about $15 million yearly pretax in its core advisory segment even though it earns at present virtually no interest on its customers' deposits. It earned $48 million in interest income in fiscal 2008.

It is a way to play an uptick in commodity prices as FCStone would benefit from increased customers' transactions. FCStone is being penalized for the major mistake it made in losing over $80 million from an energy account. I believe it was a one-time event in extraordinary illiquid market conditions and that FCStone has substantially lowered its risks. Tangible book exceeds $5 a share.

What is your favorite sector?

Lirola: It remains consumer discretionary, even though the sector has appreciated quite a bit from its March lows. The surviving companies will benefit from rebounding consumer demand in 2010, reduced competition after the bankruptcies of some competitors and increased profitability from leaner inventories and reduced offerings. I like CarMax(KMX Quote), which is gaining share both from the shift to used cars, and the disappearance of smaller dealers.

What sector or stock would you avoid?

Lirola: I would avoid health care services, which faces a prolonged period of uncertainty as the government seeks to rein in providers costs.