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Some companies are obviously great investments -- in hindsight. Yet for every stock out there screaming "buy me," others simply give us a nudge and a nod. How can we tell tomorrow's obviously great investments from the thousands of pretenders?
The stars' walk of fame
The data shows that stocks achieving five-star ratings on Motley Fool CAPS have outperformed the market by 12 percentage points and newly minted five-star stocks represent your best opportunity to capture those returns. So let's sift through the proprietary ratings system and find those stocks heading toward superstardom. Here are a handful of four-star firms approaching greatness.
- Apple (Nasdaq: AAPL )
- Cisco (Nasdaq: CSCO )
- Boeing (NYSE: BA )
- General Electric (NYSE: GE )
- Potash Corp. of Saskatchewan (NYSE: POT )
Some of these names might surprise you. General Electric, for example, has been bringing good things to light for over a century. Almost great? But even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. However, the 120,000-plus CAPS members chose these companies as less obvious sources for tomorrow's great buys, so let's see why they might merit your attention.
In the sight of greatness
There used to be a saying, "As goes General Motors (NYSE: GM ) , so goes the economy." That was long before the iconic car maker neared penny-stock territory and needed government handouts to keep its engines running. CAPS member Amateur505 perhaps thinks Cisco is the new bellwether stock, noting that the stock price and the market have moved pretty much in tandem this year:
Cisco essentially tracks the S&P 500 exactly. Their fundamentals are very good. Some companies may turn elsewhere for cheaper networking products during these tough times. But getting in now while their P/E is below 15 (now at 12.3) seems like a steal. A safe long term bet in a volatile market.
Boeing is another stock following the market's track lower this year, but it may have reached an inflection point where the bleeding may begin to stop. By reaching a tentative settlement with its union, the aircraft maker granted major concessions to its workers and ended the feud which was, by some estimates, costing it about $100 million a day in lost revenue. CAPS member LimoDriver1971 sees that achievement as an impetus for greater growth:
Even though Boeing stock is a market follower, I see great things coming out of the new labor agreement. Among those adjusted pay scales that are more beneficial to the company. Secondly a new outlook on the way that manufacture should go.
All of it adds up to a greater than market gain.
There was a time not too long ago when hedge funds were the hot-ticket item and small investors wanted in. Fortress Investment Group (NYSE: FIG ) went public last year, giving individuals a backdoor entrance to a world whose denizens typically had to earn more than $200,000 a year and have a net worth of $1 million or more. It might have been a sign of the End of Days when hedge fund operators even had their own summer of love festival two years ago called Hedgestock.
Today, investors are fleeing hedge funds in droves as their performance has been dismal, causing, by some estimates, a half-trillion dollars worth of redemptions. That's leading the funds themselves to bail out on their positions, driving stock prices down further.
CAPS member tedamerica believes that it's the hedge funds having to dump shares to pay for the redemptions that's caused PotashCorp to see its share price fall even after beating analyst estimates in the third quarter: "3Q '08 earnings beat estimates but the stock price sunk on hedge fund redemptions. Any way you can buy in now in the $70 a share area."
The current market environment has seemingly opened up an attractive buy-in point. Fool.com writer and All-Star CAPS member rbgibbons thinks Potash will outperform as it will enjoy stellar pricing power in the days to come:
Grain inventories at low levels. Prices are low, but should correct eventually. New Potash mines take a long time to come online, so supply growth is limited, while demand should be high. The combination gives the company pricing power that should make today's prices seem stupidly cheap.
A great opportunity for you
These four-star investments could be on their way to five-star greatness, and it pays to start your own research on these stocks on Motley Fool CAPS. 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. And do us all a favor by adding your own thoughts.