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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 5,400 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.
- A-Power Energy Generation Systems (Nasdaq: APWR )
- Dynegy (NYSE: DYN )
- Genco Shipping & Trading (NYSE: GNK )
- GMX Resources (Nasdaq: GMXR )
- Yingli Green Energy (NYSE: YGE )
Some of these names might surprise you. For example, Dynegy has been a leading energy provider that's been hurt by the recession as business and industrial customers have cut back on demand. If the economy recovers, undoubtedly its growth prospects will too. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold.
GMX Resources is another that has had the last laugh on Wall Street, but as it adjusts to new SEC rules regarding how oil and gas companies account for reserves, the market's going to find that it's not alone in seeing those numbers cut and will adjust accordingly. However, the 160,000-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?
Some see A-Power Energy Generation System's failure to manage earnings expectations as a sign it has a credibility problem. Last quarter's results come in lower than analyst forecasts, and guidance for the rest of the year was also well below what the Street had anticipated. Maybe we've just come to expect managers to massage results so when they don't we see it as a failing of theirs.
Of course, for all we're hearing about wind power demand in China and distributive generation, it's natural you'd want better numbers. After all, American Superconductor (Nasdaq: AMSC ) is making a big splash by partnering with Sinovel, the biggest turbine maker in the country.
Looking at the various aspects of A-Power's business, CAPS member Streetlife373 thinks the market is missing out on what will become a big, growing business: "APWR is worth more then this based on their DG business alone. When you throw in some wind revenue's (maybe a lot if Texas goes through) and it's a screaming buy at this price."
On the shoulders of giants
If wind power is becalmed, then the shipping industry has sailed into the doldrums. While the 17 companies comprising the dry bulk shipping tag on CAPS have returned an average of 17% over the past year, the broader market is up almost 38% in the same period of time. Genco Shipping is up nearly 11%, but Eagle Bulk Shipping is down 23% and DryShips (Nasdaq: DRYS ) is off 14%.
Genco has proven itself adept at charting an opportunistic course. Even as daily time charter equivalents dropped 13% in the fourth quarter, it offset the lower rates by expanding its fleet, now at 35 vessels and focusing primarily on long-term charters. It also launched Baltic Trading that will operate in the spot market, so if rates rise from their current levels, Baltic should benefit. Genco too, since it owns more than half of the new shipper and manages its operations.
CAPS member shanelofgren thinks Genco is a superb operation, and once it reinstates its dividend will experience a big pop up.
This company is a huge value right now, with price to book of .66. And their assets are of high quality as well; their ships are generating a huge profit for the shippers. Shipping doesn't even have to rebound as these guys are making plenty of money as is. Just wait for them to reinstate the dividend and this stock will pop.
A big opportunity
Solar hasn't exactly been shining lately either and analysts worry that Yingli Green Energy will cloud its cost advantages by ramping up internal production of polysilicon. The stepped-up capabilities won't hit until mid-year according to the vertically integrated solar shop. Yingli says it wants to make sure its Fine Silicon facility is running properly before launching so it has no plans to exceed its current capabilities right now.
Of course, that meshes with the analysts who say next year will be when there's greater price competition, which will ultimately hurt Yingli's cost structure.
With over 96% of the more than 1,600 CAPS members saying the solar leader will outperform the market, it looks like they're expecting some sunshine to brighten their day.
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.