Should You Buy These Stocks Now?

Some stocks simply have such great potential that "everyone" knows they're a good buy today. Yeah, right.

If we knew in advance that Sadia would return more than 1,300% since it began trading in 2001, we'd have mortgaged our house on it -- and yours, too! It's easy to see after the fact which companies have been winning investments. But we need to know beforehand which stocks will grow hundreds of percent in value over the years. That's where Motley Fool CAPS comes in.

The more than 89,000 professional and novice investors in CAPS rarely agree on a stock's prospects. Motley Fool Hidden Gems recommendation Natus Medical (Nasdaq: BABY  ) is a well-respected, top-rated stock, but 24 of the 1,042 CAPS players to rate it still believe it will underperform the market. So when you come across a stock that everyone on CAPS thinks will outperform, you've got something special. Here are a handful of those "obvious" investments.

Company

Bulls

All-Star Bulls

Price

Return on Capital, TTM

Tecumseh (NASDAQ:TECUB)

37

2

$25.71

0.8%

Eastern American Natural Gas Trust (NYSE:NGT)

34

5

$27.50

31.9%

Sutor Technology Group (NASDAQ:SUTR)

24

5

$3.88

NA

Epcos 

23

10

$17.78

5.9%

Sources: Motley Fool CAPS and Capital IQ, a division of Standard & Poor's, as of 3/23/08.
TTM = trailing 12 months; NA = not available.

As always, none of the companies on this list should be considered formal recommendations -- just starting points for further research. We've simply used CAPS to narrow down your workload.

A steely resolve
A surging Chinese economy becomes one that is reliant on steel to build the infrastructure needed to advance. Sutor Technology, which recently made the jump from the pink sheets to the Nasdaq big leagues, has been enjoying the benefits of that growth, with revenues jumping 46% in the last quarter, primarily as a result of cold-rolled steel products.

Over the weekend, CAPS All-Star ReInAd, with a player rating of 96.89, wrote these words:

Sutor is a no-brainer value play on China. It is currently trading at a P/E of only 5 in an industry that is fetching more than 15. In the [world's] hottest economy for many years to come, [Sutor] has gotten technically oversold and presents a great buying opportunity.

A handful of other players have briefly weighed in on Sutor, finding it to be a play on China's growing importance in the world economy. CAPS investor rickdoom saw it earlier this month as perhaps risky, but possibly having a large payoff.

Purely speculative, but [Sutor] definitely has the potential for huge short-term gains, much like that of China Precision Steel (Nasdaq: CPSL  ) back in September of 2007. Also, [Sutor] currently trades at a much lower multiple than its peers, making it a good value play with strong upside potential. Somewhat risky, though it could very well turn out to be a big winner for 2008. We will see.

There are indeed risks here. More than 42% of Sutor's revenues come from sales to related parties. That's less than the 62% last year, but about the same as last quarter, when it said it was going to start selling more to third parties. It also enjoys a reduced tax rate as a result of some special tax law provisions in China. These won't expire for a couple of years yet, but any change to its protected status could materially impact results.

Sutor will also need to grow those third-party revenues while continuing to wean itself off its related-party transactions, which mask the true nature of a company's operations. Investors will need to check closely to see if this is truly the "obvious" investment it may seem on the surface.

Let's hear from you
How about your take? Is this a chance to dig deep with your portfolio to mine the next "buy now" stock? If you want to add your two cents, sign up to join the Motley Fool CAPS community, which is 100% free.


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