5 Stocks Approaching Greatness

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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
On Motley Fool CAPS, these opportunities can be found among our four-star stocks. In CAPS' proprietary ratings system, they rank higher than most of the other 5,300 starred companies, but they're just shy of superstardom. While all the attention might be focused on their five-star peers, we can sift through CAPS to find four-star firms approaching greatness. Here are a handful of four-star firms approaching greatness.

• Eagle Bulk Shipping (Nasdaq: EGLE)
• Isis Pharmaceuticals (Nasdaq: ISIS)
• Novatel Wireless (Nasdaq: NVTL)
• Royal Dutch Shell (NYSE: RDS-B)
• Shanda Interactive (Nasdaq: SNDA)

Some of these names might surprise you. Royal Dutch Shell, for example, has a lineage that extends back to a London antiques shop that expanded into oriental shells in1833, giving us the famous pecten logo of the oil company today. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. However, the 135,000-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's a dangerous consensus building that because durable and capital goods climbed in May, the economy is coming out of the recession. And not easing its way out, but turning sharply north in a "V"-shaped pattern. IHS Global Insight says the jump in May signals "the prospects for stabilization and recovery are moving beyond financial markets to the real economy." Those grasping for green shoots may end up with a handful of weeds.

That sort of hopeful thinking is extending even to the shipping industry where there remains a substantial backlog of orders for ship construction. It's with good reason that some smart Fools remain anxious over Eagle Bulk Shipping's decision to continue full steam ahead on its building plans.

The gross order book of dry-bulk shippers stands at 65% of the current world fleet. Diana Shipping (NYSE: DSX) seems to have assumed an appropriately cautious outlook regarding global supply and key to the survival of shippers will be an easing of the tight credit markets. DryShips (Nasdaq: DRYS)for example, is still struggling with its high level of debt. If money doesn't start flowing soon, some analysts expect order cancellations could hit as high as 50% of the backlog. Ship scrapping might be the industry's only saving grace.

While it was an event that was virtually unknown in the industry when the Baltic Dry Index was hitting new highs regularly over the past few years, the dramatic implosion of rates -- the Index plummeted 92% in 2008 -- has resulted in 2.5% of all dry-bulk ships being scrapped over the past six months ending in April.

Still, a strain that has yet to be felt is the increasingly common decision for shippers to buy their ships outright instead of leasing them. Pricing on ships has now reached distressed levels. The Hellenic Shipbrokers Association recently noted that a dry-bulk ship that sold for $33 million last year is now for sale for just $6 million, so it makes economical sense to consider direct purchases. Adding more ships to the overall global supply can only serve to keep prices low.

Investors, though, remain hopeful. CAPS member CoolBlueTrader believes that Eagle's ability to maintain profits in this environment suggests the ability to ride out the storm.

Even after being hammered by the economy -- it still has EPS of 1.38 & GOOD profit margins. It's trading at 1/2 its Book = Good entry point. As the market recovers, its $ will double.

Similarly fangalang says there will be a turnabout in commodities once again and when that happens shipping in general and Eagle Bulk Shippers in particular will recover.

There will be another upswing in commodities, eventually [Eagle Bulk Shipping] will pay a dividend. Both trends will translate into a much higher price.

The 14 stocks that comprise the CAPS Dry Bulk sector have faced rough seas this past month, dropping more than 21% on average. At a loss of more than 37%, however, Eagle has been swamped and is trading down today as well.

A great opportunity for you
Investor sentiment suggests these four-star investments still seem to be on their way to five-star greatness, but 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 us hear what you have to say about the great and almost great companies that interest you.