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With over 5,400 stocks to choose from, the universe of investment possibilities is enormous. You could get tips over the company water cooler or from Internet discussion boards. A better way might be to look for stocks based on what you already know and own.

Motley Fool CAPS helps you focus your energies by providing you with a personalized Stock of the Day. Using its supercomputer, it looks at stocks currently in your active pick list, ones that highly rated players who share similar pick lists to yours like, industries in which you currently have active picks, and Saturn's orbit around the sun. Well, maybe not that last one -- but it targets areas in which you already have an interest.

By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.

Based on my outperform ratings on energy industry denizens HollyFrontier and Samson Oil & Gas, as well as an underperform rating on enriched uranium supplier USEC, the CAPS supercomputer thought I also might be interested in Peabody Energy (NYS: BTU) , one of five Stocks of the Day it recently offered up for my consideration.

Let's see what the coal miner has going for it that might warrant an investment, even if it hasn't yet picked it for you. Just remember, as smart as the CAPS algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions.

Peabody Energy snapshot

IndustryOil, Gas & Consumable Fuels
Market CAP$9.7 billion
Revenues, TTM$8.0 billion
Return on Capital, TTM10.3%
Dividend & Yield$0.34, 0.60%
Cash$799 million
Debt$6.6 billion
CAPS Rating****

Source: Motley Fool CAPS; S&P Capital IQ.

Buy what you know
Shares of Peabody Energy have been cut in half as the coal industry suffers from regulatory scrutiny, plummeting prices, and slack demand for metallurgical coal. Weakness in the competing natural gas sector, where inventories remain well above five-year averages and prices at multiyear lows, has also been a big factor. Analysts are looking at coal demand in China to be soft, too, as production outpaces demand.

As the largest coal producer in the U.S., Peabody is hoping to capitalize on growing demand for coal in Asia as well as a recovery of demand here at home, but others are seeing the opportunities, too. Kinder Morgan Energy Partners is looking to export more as well and is expanding its terminal facilities to accomplish this.

Yet in three of its last four quarters (and seven out of the last eight), Peabody has grown revenues at double-digit rates. Over that period, revenues have grown on average by more than 15%, and analysts are looking for that double-digit growth trend to continue over the next two years. Earnings, though, are forecast to sag, barely rising this year, and falling precipitously in 2013.

It's a story playing out over the industry. Coal producer Arch Coal (NYS: ACI) just reported revenues jumping 47% year over year, but profits fell 12%, also coming in below analyst expectations. Walter Energy (NYS: WLT) also performed poorly, missing on both the top and bottom lines. Peabody's own earnings missed consensus estimates, and 2012, particularly because of its acquisition of MacArthur Coal, will be weak even as it strengthens the miner's position in Australia.

It may seem as though an investment here would be dead money for a while; Peabody seems to be at an inflection point that heralds a coming industry turnaround. While I'm still bearish on the U.S. economy, the jobs numbers make it look like there is firmness forming. The recent warm winter that also sunk Patriot Coal (NYS: PCX) and Alpha Natural Resources (NYS: ANR) was something of a fluke.

Not only are coal miners cutting back production, but natural gas companies are also taking rigs offline. Prices of both energy sources will rise, once again taking the pressure off one another. Peabody is trading at just seven times earnings estimates, which when coupled with its forecasted growth rate, puts it at a cheaper valuation than any of its nearest rivals in an industry poised for a rebound.

As a whole, the CAPS Coal sector is down 16% for the year, but highly rated CAPS All-Star member joryko believes Peabody is undervalued even based on conservative analyst estimates:

Low end EPS estimations for 2012 are at $4. Even with a low P/E around 9 or 10, Peabody should be worth at least $40 by 2012. This is on the low end too, as average EPS estimates were closer to $5. They've met or exceeded expectations the last 5 quarters according to Reuters.

With the stock cut in half from recent highs, I've rated the coal producer to outperform the broad indexes. Let me know in the comments section below, or on the Peabody Energy CAPS page, if you think 2012 will be a good year for growth.

Even if Peabody Energy doesn't interest you, we've compiled a special free report for investors called "3 American Companies Set to Dominate the World," which gives a rundown of three American companies set to take over emerging markets. The report is 100% free, but it won't be around forever, so click here to access it now.

At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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