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 that newly minted five-star stocks represent your best opportunity to capture those returns. So let's sift through the proprietary ratings system and find a handful of the four-star stocks approaching greatness.
- China Yuchai International (NYSE: CYD )
- Danaher (NYSE: DHR )
- Fairfax Financial (NYSE: FFH )
- Granite Construction (NYSE: GVA )
- MercadoLibre (Nasdaq: MELI )
Some of these names might surprise you. Diversified manufacturer Danaher, for example, has been making professional, medical, and industrial tools and instrumentation for years. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. However, some of 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
Often thought of as a "mini" Berkshire Hathaway (NYSE: BRK-A ) , Canadian insurer Fairfax Financial has been gaining a following lately because of the foresight of its chairman and CEO, Prem Watsa. According to Canada's National Post, he's the only money manager to have benefited from the collapse of the financial markets. After remaining fully hedged in October and November, Watsa now thinks that while it's quite possible the markets could decline much further from here, it's a wonderful time to begin buying stocks. That sounds very similar to what Warren Buffett said a few months ago.
This stock is cheap by all the traditional metrics such as price/book, p/e, peg, and so forth. They have excellent profit margins, low debt, and astute management. Most of all they have a huge pile of cash to put to good use. This should be a good long term performer.
Many are counting on the huge public works plan President-elect Obama is crafting -- which some believe could carry a price tag as high as $1 trillion -- to pull the economy out of recession. Investors are trying to determine which companies will be the ones benefiting from the massive spending. Certain businesses that would supply the infrastructure to any project, like Mueller Water (NYSE: MWA ) , for example, would seem a natural pick. CAPS All-Star fladoy thinks Granite Construction will be another one to profit.
The company should benefit from the infrastructure projects that will take place during the next Administration under Obama.... The stock quickly moved to $50, but has since sold off to the mid $40's and offers a great opportunity for new investors.
A great opportunity for you
These four-star investments are 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.
Sign up today for the completely free service and let's hear what you have to say about the great and almost-great companies that interest you.