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 dug up.
- Alcoa (NYSE: AA )
- ExxonMobil (NYSE: XOM )
- Nuance Communications (Nasdaq: NUAN )
- Suntech Power Holdings (NYSE: STP )
- Titanium Metals (NYSE: TIE )
Some of these names might surprise you. ExxonMobil, for example, has been putting a tiger in your tank for decades. Almost great? Some Fools think it's the greatest company in the world. Yet even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. However, the 145,000-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?
The world's biggest aluminum producer, Alcoa, kicked off the new earnings season yesterday. If Alcoa's results are any indication, it's shaping up as a big fumble. Per-share earnings came in well below analyst expectations, even though the company engaged in a massive restructuring that included plant closings, dividend cuts, and more than 21,000 layoffs in the last year. Higher energy costs and a weak dollar were cited as a large part of the reason Alcoa's earnings were underwhelming.
Yet its release still contains signs of hope. Free cash flow jumped to $947 million, the first time owners' earnings landed in positive territory since 2008. Alcoa's cost-cutting positions the company for a lower-cost model down the road. It might not ever be a low-cost leader like Rio Tinto (NYSE: RTP ) , but the emerging markets of China and India will continue to need aluminum as they build out their economies. That means Alcoa's output will likely still be in demand. And if Ford (NYSE: F ) is any indication, the auto industry may be recovering enough to help absorb some of that excess aluminum inventory.
Although aluminum demand is still weak, GulfCoastPicks is looking for a global economic recovery to push demand for aluminum higher. The CAPS community apparently concurs with its potential to become a monster growth opportunity; 93% of those rating the aluminum producer have marked it to outperform the markets.
Head over to the Alcoa CAPS page to discuss whether the weak economy will foil this aluminum producer's recovery.
Try this on for size
Ford might also help boost the prospects for voice recognition expert Nuance Communications. Both companies have teamed up to advance the next generation of SYNC, the automaker's in-car communications and entertainment system.
Ford is adding all sorts of new technological capabilities to its dashboard; for example, your car will soon read you the latest Twitter updates. SYNC's voice-activated interface means you'll be able to do a lot more hands-free controlling of your MP3 player, navigation systems, and mobile phones. Of course, having a device in your hands while driving isn't necessarily dangerous; the peril comes from the distraction such devices cause. Ford hopes its new advanced capabilities minimize that.
For its part, Nuance continues to buy up anything even remotely related to its voice-recognition technology, such as its $103 million purchase of SpinVox, which converts voice to text. All those acquisitions, though, make it tough to understand Nuance's many moving parts, since it becomes nearly impossible to make an apples-to-apples comparison about its performance.
As a result, CAPS member 00101 doesn't like the look of Nuance's financial statements. But among more than 5,500 members rating the speech-recognition specialist, only 4% of them predict that Nuance will underperform the broad market averages. I happen to be part of that small minority; I think the buying spree Nuance has been on will ultimately catch up with it.
What about you? Use your speech-recognition software of choice to dictate your opinion about the company on the Nuance Communication CAPS page or in the comments section below.
A great opportunity for you
Investor sentiment suggests that these four-star investments still 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.