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 rated 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 companies that night be approaching greatness. Here are a handful:
- Bank of Ireland (NYSE: IRE)
- Brocade Communications (Nasdaq: BRCD)
- Joe's Jeans (Nasdaq: JOEZ)
- North American Palladium (NYSE: PAL)
- Tellabs (Nasdaq: TLAB)
Some of these names might surprise you. For example, Bank of Ireland had to be bailed out along with Allied Irish Banks (NYSE: AIB), but both were able to pass Europe's bank stress test. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold.
And fashion jean maker Joe's Jeans is looking to crack in a big way the market that has been dominated by True Religion Apparel. However, the 165,000-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?
I was one of those who thought the options backdating scandal should have been a bigger deal with investors, let alone the Securities and Exchange Commission. While some were angered by it, considering how widespread the practice was, Brocade Communications was unfairly set up as the whipping boy for the fallout.
Brocade is a much better company today, despite an industrywide slump in Ethernet sales earlier this year that resulted in lumpy performance. While Brocade and others were hurt, leading CAPS member jhakimi to suggest Brocade was a good acquisition target, Cisco (Nasdaq: CSCO) and Juniper Networks shined.
Analysts now expect Brocade to push earnings 11% higher this year, with similar increases over the next five. At less than eight times projected earnings for 2011, Brocade seems to be a great value.
On the shoulders of giants
If you just look at palladium prices having collapsed, you'd conclude North American Palladium was in the middle of a tailspin. But its jump into gold with the purchase of assets from Agnico-Eagle Mines looks particularly well-timed, and its Sleeping Giant mine nearly doubled its resources, making it another undervalued stock ready to move.
Of the more than 1,000 CAPS members weighing in on North American Palladium, 96% say it will outperform the broad market averages.
A big opportunity
CAPS member cbreen215 anticipated Tellabs putting up robust numbers this quarter and wasn't disappointed. The telecom equipment maker reported a 10% jump in revenues, generating profits that came in 300% higher than a year ago.
Tellabs' earnings were unlike many of the other reports we've seen from businesses in and out of the industry. Many companies said they achieved higher profits even though sales fell from the comparable period. That means they've been achieving gains through cost-cutting rather than real growth, and it underscores why we're witnessing this so-called "jobless recovery." It's going to make for a more difficult time ahead for the companies that haven't been able to grow their business.
With shares down 17% over the past three months, look for Tellabs to dial up more growth.
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.
It's time to get short! Corporate earnings quality is at its lowest in decades. John Del Vecchio, CFA -- professional money manager and leading forensic accountant -- warns that even "safe" portfolios are at risk. Institutions pay thousands per month, but you can sample Del Vecchio’s research FREE. Just enter your email address below for instant access.
Terms & Conditions
RSS Headlines
Fool UK