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, you'll find these opportunities 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 five such candidates:
- Atheros Communications (Nasdaq: ATHR )
- Merck (NYSE: MRK )
- Nokia (NYSE: NOK )
- PotashCorp (NYSE: POT )
- Synaptics (Nasdaq: SYNA )
Some of these names might surprise you. Pharmaceutical giant Merck has been an industry leader for more than 100 years. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. The 135,000-plus CAPS members chose these companies as less obvious sources for tomorrow's great buys; let's see why they might merit your attention.
In the sight of greatness?
Multitouch display screens could grow into a multibillion-dollar business. Leading the way: Synaptics, which rose to prominence when its screens were used in Apple's (Nasdaq: AAPL ) iPhone. According to the market analysts at DisplaySearch, touchscreen capabilities will grow at a compounded 14% growth rate over the next six years, with mobile phones making greatest use of the technology. Touchscreen tech should be able to penetrate 40% of the mobile phone market by then.
Anyone familiar with using the iPhone's touchpad knows the pleasure of two-finger gestures. No, not those sorts of gestures -- I refer to the flicks, pinches, and swipes that define the Apple experience. Now Synaptics has unveiled 10-finger gestures, accurate to within a millimeter. Imagine "crumpling" an email you want to discard, like you would a piece of paper to toss in the trash. That would require just three fingers, but it represents the sort of thing you'll be able to do. This greater gestural range is expected to advance cell phones and other devices coming to market within the next year.
Coupled with the smartphone upgrade cycle, CAPS member Prodders figures Synaptics is poised to prosper: "Nicely placed to benefit from the smartphone product cycle, plus could also benefit if tablet PCs take-off. Market arguably overreacted to recent earnings miss."
A bright future
If the rumors prove true, Synaptics will also have finally captured the biggest handset maker in the world: Nokia. Nokia currently owns 45% of the handset market, selling 18.4 million of them in the second quarter alone. (That's well ahead of Apple's 5.4 million iPhone sales.)
Since early summer, the rumor mill has buzzed that a Nokia phone featuring Synaptics' touch screen technology (with or without multitouch) would finally ship in the third quarter this year. Still, it would represent a coup of sorts; Nokia has thus far resisted using the technology, because it prefers resistive touchscreens to Synaptics' capacitive glass panels.
Nokia's change of heart undoubtedly owes in part to the impact that Apple and others have had in the high-end smartphone market. Nokia has also unveiled its first high-end 3G smartphone, the N900, which is based on Linux open source software, instead of the Symbian OS all its other phones use. The Google (Nasdaq: GOOG ) G1, meanwhile, uses the open-source Android OS.
Nokia has often been slow to adopt market preferences until forced to. Its refusal to offer a clamshell phone when those were the must-have style stands out. However, highly rated CAPS All-Star member SreeRama thinks Nokia may be getting wise:
There are signs of the giant awakening from its deep slumber. The channels, the mindset and market share they have the world over is by far the best amongst the mobile device manufacturers. What was plaguing the company in the recent past is the lack of "must have" handsets; but all that is about to change.
A great opportunity for you
Investor sentiment suggests that these four-star investments seem to be on their way to five-star greatness. Still, 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.