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 we’ve discovered recently.
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Accuray (Nasdaq: ARAY)
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Caterpillar (NYSE: CAT)
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Level 3 Communications (Nasdaq: LVLT)
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Nuance Communications (Nasdaq: NUAN)
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Yingli Green Energy (NYSE: YGE)
Some of these names might surprise you. Level 3 Communications has been a leading player in fiber optics and in operating one of the largest backbone networks. 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 was enough hope for recovery in July's housing numbers to lift construction vehicle maker Caterpillar. Falling prices boosted existing home sales 7.2% last month, spurring a 3% increase in Caterpillar's stock, as investors believe there will be more need for its vehicles. The heavy equipment maker needed some good news, since total sales dropped 47% in the last quarter, with North America's numbers tumbling further, falling 59% from the year-ago period.
In particular, the truck segment has been weighing down Caterpillar's operations. The U.S. truck market dropped 32% through July of this year, while Cat's own truck segment plummeted 72%. Things have been so bad in the segment that Caterpillar announced last year it would be withdrawing from supplying engines to the truck market by 2010.
Coupled with the housing numbers, China might signal a reversal of fortunes. Over the first seven months of 2009, truck sales there have risen 23%, which makes Caterpillar's new deal with Navistar (NYSE: NAV) an important introduction to that market. The two vehicle makers will be teaming up with Anhui Jianghuai Automobile Company to produce medium and heavy-duty trucks and engines for the Chinese market, but CAPS member shreebs thinks the China connection has been overplayed:
Has had a great run with this overextended mkt banking on a V shaped economic recover, which will not happen and when the mkt realizes that,soon it will be back down the slide for a little while. Also the assumption that China will create continuous demand for infrastructure build is also a little overhyped...
A bright future
Last week, Yingli Green Energy reported that it was shipping a lot more product at reduced prices, resulting in reduced margins. Some smart Fools think this amounts to much ado about nothing and believe the selloff in the stock was reactionary. Yingli might still face pressure when it comes down to competing against its closest rival, Trina Solar (NYSE: TSL).
Trina's already written down its inventory, and Yingli proudly says it has not. But with lower polysilicon prices now firmly fixed in the marketplace, the potential for Yingli's margins to improve looks weak. On the other hand, Trina is better positioned because its per-watt costs for non-silicon manufacturing for multicrystalline products are lower than Yingli's $0.90 per watt. There is simply a lot of supply in the market that needs to be worked out, and solar companies may be a little too enthusiastic about future shipments.
Still, CAPS member STows99 thinks the company’s presence in the U.S. complements its Chinese position, and that subsidies from overseas will keep it flush with cash:
YGE is the leading solar company in China. It has branched and grown into the USA with bicoastal offices in the major cities of each. That says something about the management of the company, they know that Green Energy is an up and coming movement and there is a lot of money to be made on it. Their success is complimented by the willingness of the Chinese government to credit these kinds of companies like YGE with government subsidies to help them grow. All in all YGE is a good bet, in it to win it, and a solid long term investment.
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.
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