5 Stocks Approaching Greatness

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 companies approaching greatness. Here are a handful of companies having four-star status last night that could be approaching greatness.

  • FirstEnergy (NYSE: FE  )
  • Hecla Mining (NYSE: HL  )
  • Ocalro (Nasdaq: OCLR  )
  • RAIT Financial Trust (NYSE: RAS  )
  • STEC (Nasdaq: STEC  )

Some of these names might surprise you. For example, utility operator FirstEnergy runs a group of power generation companies across Ohio, Pennsylvania, and New Jersey, which like Southern and Duke Energy notched higher earnings as a result of the incremental increase in demand. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold.

And STEC appears to have put the ZeusIOPS drive inventory issues with EMC (NYSE: EMC  ) behind it. Its sector has started to garner renewed interest, as Dell sweeps in to buy enterprise storage specialist 3PAR

Still, the 165,000-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?
It's true that gold grabs all the glittering headlines, but as the Fool's Chris Barker has urged for some time now, investors might be better off looking at its comparatively neglected sibling silver. Barker's long had a sweet spot for silver stream specialist Silver Wheaton (NYSE: SLW  ) , but Hecla Mining remains Fools' preferred miner.

At just 15 times earnings, Hecla is one of the cheapest silver plays, even though its shares have risen 75% over the past year. Silver Wheaton's more than doubled in that time frame, but at 37 times last year's earnings, the market may finally have fully acknowledged its former value.

More than 1,000 CAPS members have weighed in on the low-cost silver miner, and 94% believe Hecla will outperform the broad market averages. You can mine the Hecla Mining CAPS page for additional nuggets of explanation on why this will be the premier silver play.

On the shoulders of giants
Oclaro makes optical components for use in high-performance fiber optics communication networks, but increasingly it's looking to China to support that growth and it has transferred a substantial amount of its in-house assembly and test and related manufacturing operations there. And Chinese network equipment maker Huawei Technologies provides nearly a fifth of Oclaro's revenue.

According to the market analysts at Infonetics, there's been a global increase in optical networking hardware sales in the second quarter. It was a pretty broad-based increase, with growth in North America, the Asia Pacific region, and Central and Latin America. Europe, the Middle East, and Africa offer more mixed prospects for the rest of the year.

More than 83% of CAPS members rating it see the optical components specialist beating the market, but is it as clear to you that it will? Tell us in the comments section below or on the Oclaro CAPS page whether this greater reliance upon Chinese telecom growth will pay off.

A big opportunity
Despite being profitable last quarter for the third time in a row, RAIT Financial Trust's shares have fallen by 25% since the beginning of the month and are down 45% over the past three. It's undoubtedly based on the dour outlook for the commercial real estate market. Moody's says it expects delinquencies to rise from 9% to 11% over the next year.

As if to underscore the situation, Macerich, which owns more than 70 major shopping centers, turned over the keys to a Dallas mall to its lender. But CAPS member auriolus says it's important for investors to separate the wheat from the chaff and not lump RAIT Financial in with the others:

Turned into profitable company again, book value 5x higher than current price, still under pressure because of being a part of the real estate industry. Good time to start accumulating IMO. 

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.

Moody's is a Motley Fool Inside Value pick and a Motley Fool Stock Advisor recommendation. Duke Energy and Southern are Motley Fool Income Investor picks. Motley Fool Options has recommended a covered calls position on Moody's. Try any of our Foolish newsletter services today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a gold-plated disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 18, 2010, at 3:35 PM, jrmart wrote:

    STEC investors, it takes between 12 to 18 months after you introduce a new Enterprise-Storage Solid State Device (E-S SSD) before it's approved for use in critical Enterprise-Storage Applications. STEC is the market leader in this area which is expected to grow dramatically in the next few years. The reason for this is very simple. An E-S SSD has no moving parts, is super fast, runs much cooler, uses less power and air conditioning and is easier and cheaper to maintain when compared to the old, spinning energy hungry drives from Seagate, Western Digital, etc.. Additionally, fewer E-S SSD's are required to do the same job, which means smaller data centers. On April 27, 2010 - Objective Analysis published a new 104 page market report - Data Centers Drive Major SSD Growth ($5,000) which concludes that "the stunning growth of SSDs in enterprise servers and storage systems is only going to get stronger." The company finds that the enterprise SSD market is likely to approach $4 billion in revenues by 2015, nearly 17x times that of 2009, while unit shipments will increase by 50x during that period to over 4 million units. Enterprise storage companies like IBM, EMC, Fujitsu, Dot Hill and 3PAR have already bought or installed over 160 million dollars of STEC's Zeus E-S SSD's. Additionally, STEC's Zeus Products provided over 50% of its revenues, over 34 million dollars in the last quarter and are now considered the GOLD STANDARD for Enterprise Storage Applications. By the time Seagate, Western Digital or any other competitor delivers a competing E-S SSD, STEC's Zeus sales could potentially exceed 500 million dollars.

  • Report this Comment On August 24, 2010, at 10:13 PM, unclebuc88 wrote:

    I am not extremely confident in the Chinese global telecommunications status, seeing that I bought into the GUANGZHOU GLOBAL TELCOM INC (GZGT) in Jun 07. It was highly suggested as is (OCLR) at purchase of shares @ 2.75 per., that day it rose to low to mid $3., only to have it drop to less than $1. over night. It now sits @

    $0.004. I will be taking my loss this yr on 375 shares... Taking in so many loses, it seems as though I have no choice but to sell everything I have and be done with the market and trading...

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