5 Stocks You're Gonna Want to Own

Driving past a work crew burying fiber optic cable into the roadway, you're probably more cognizant of the company truck that says Verizon (NYSE: VZ  ) or Comcast (Nasdaq: CMCSA  ) than the one that says Dycom Industries (NYSE: DY  ) , yet it's the latter that's probably doing the actual ditch digging and burying the lines in the ground.

The Florida-based specialty contractor hires out to the telecom and cable company engineers to craft network-design services, mainly by addressing the distance from central offices to customers' premises, as well as to the digging crews that excavate the trenches and lay the cables in them. While that comprises nearly three-quarters of its business, Dycom is also on loan to them for the call-before-you-dig services the utilities run when residents plan to do digging in their own backyards.

It's been an up-and-down business for Dycom, but as the demand for ever-better video, voice, and data services grows, the telecoms and cable operators will want to upgrade or expand their networks. Currently, it derives almost 20% of its revenues from AT&T (NYSE: T  ) , 18% from Verizon, and 12% from Comcast, and its top five customers account for 63% of total revenues. There is risk in such concentration, but it's also meant a steady supply of business from these industry leaders.

Screening for likeability
In addition to its trucks, investors might want to take notice of Dycom's stock, too. It showed up on a screen of companies that have enjoyed growing investor support these days after starting off the year on the outs. Dycom jumped from a two-star Motley Fool CAPS rating (out of five) in January to five stars today -- despite a big earnings miss that sent its stock plummeting back in February, making it one of the worst stocks in the market at the time.

CAPS is a 100,000-plus-member investor community that rates thousands of stocks on whether they will outperform or underperform the market. While not a predictive service, in its first year of operation, the trailing returns of the stocks in the CAPS universe correlated precisely with their relative CAPS ranking. Top-rated four- and five- star stocks outperformed low-rated one- and two-star stocks.

Here are a few of the other companies the CAPS screener found that currently enjoy significant investor support:

Company

CAPS Rating January

CAPS Rating Today

YTD Return

Est. LT Growth

Dycom Industries

**

*****

(45.6%)

11%

Falconstor Software (NASDAQ:FALC)

**

****

(27%)

28%

Allied Waste (NYSE:AW)

**

****

13.1%

11%

Blount International

**

*****

10.3%

10%

Stoneridge (NYSE:SRI)

**

****

92%

12%

Source: Motley Fool CAPS; Yahoo! Finance. Screen was 1- or 2-stars on 1/1/08 and 4- or 5-stars on 5/6/08.

Naturally, this is not a list of stocks to buy and sell, but rather a starting point for further analysis. Investors have raised their outlook significantly on these companies, and it may mean there's still room to move.

A fine mesh filter
Dycom has been on investor radar screens for awhile now. As far back as 2006, FreethinkerKW pointed out the lucrative business potential Dycom held, particularly in its home state of Florida, which seemed to be in a mad dash to bury all manner of cables underground following the destructive series of hurricanes that hit the state in 2004 and 2005. Here's an excerpt:

After hurricanes in 2004 and 2005 chewed up both coasts, utilities were bombarded by requests from municipalities to bury their lines. The problem is workers must have high skills and must have licensed line workers supervising every crew. These guys aren't easy to find... Everyone wants to bury cables in Florida now. There is so much work it will take decades to get it done.

p.s. Extra revenue enhancement comes from locating and repairi[n]g underline breaks. Very lucrative and specialized part of this business which will grow as more cables go underground.

More recently, this past March saw CAPS investor tiobueno pointing out that insiders were buying shares. A check with Form4Oracle.com confirms that insiders bought $2.2 million worth of shares in the month at an average price of $11.50 each. Shares have risen almost 25% since then, but they might still have more room to run. With nearly five dozen investors having rated Dycom, only one has marked it to underperform the market.

Takes a CAPS bow
There are many ways to screen for stocks to beat the market. You can use the new CAPS screener to find your own winning investments, but if you want to see what other stocks CAPS investors have slated to outperform the market, head over to Motley Fool CAPS now. It's completely free to join.


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