3 Stocks Approaching Greatness

For every stock out there screaming "buy me," others simply give us a nudge and a nod. While all the attention might be focused on their five-star peers, we can sift through Motley Fool CAPS to find four-star stocks giving us the "high sign" that they're approaching greatness. 

These opportunities – including familiar names and beaten-down companies -- rank higher than most of the other 5,400 starred companies, and it pays to investigate their potential. For consideration today, I've got this handful of stocks on their way to fame:

  • Bridgepoint Education (NYSE: BPI  )
  • Cal-Maine Foods (Nasdaq: CALM  )
  • Glu Mobile (Nasdaq: GLUU  )

The 170,000-plus CAPS members have chosen 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?
Contrarians and value investors (they're the same thing, right?) dare to go where the crowd fears to tread. Investors who live by Warren Buffett's famous quote to be greedy when others are fearful might want to consider the for-profit education sector.

It's not a pretty business these days. Homegrown educators like Apollo, Corinthian Colleges, ITT Educational Services, and Strayer Education (Nasdaq: STRA  ) are all under attack for purportedly failing to help enough students graduate and get good jobs. Their stocks are down 35% or more over the past year, and Princeton Review has plummeted almost 90%.

Abroad, Chinese for-profit shops ChinaCast Education (Nasdaq: CAST  ) and China Education Alliance (NYSE: CEU  ) labor under allegations of shady practices. In short, it's a great time to invest -- albeit selectively.

Some smart Fools find Bridgepoint Education the best opportunity among a crowded field. Say ALOHA to a beaten-down stock (shares are off almost 30% in the last year) that still offers significant growth potential. Enrollment has expanded dramatically even as profit margins widened, and Bridgepoint seems to escape much of the criticism that's been leveled at the sector. According to Andy Louis-Charles, Bridgepoint's repayment rates and graduation rates fall within the dictates of proposed DOE requirements, while regularly meeting or exceeding those of its rivals.

Highly rated CAPS All-Star TSIF admits that with the government going on what he calls a "private college witch hunt," Bridgepoint could be a risky play, but structural trends have it graduating at the head of the class:

It's moving more toward ground base and even if the Senate levy's penalties or restrictions, it's cost model is fairly sound. Profit magins 18%, operating margins 30%. No debt. $5 per share cash on hand. Income tripled in the last three years. Cash flow solid, bought back shares last year. Not sure what the timeline will be, but until there is regulation, profits/cash flow will continue to be maintained and the final result may not be that harmful if Bridgepoint ups it's ground base and if so many students are dropping out anyway under the current format.

Let us know on the Bridgepoint Education CAPS page whether you think you'd be a dunce to miss this opportunity.

Mmm, mmm good!
Certainly, you don't want to put all your eggs into one basket, but with Cal-Maine Foods reporting falling profits, you'll be forgiven for thinking investors have scrambled their brains for investing in the country's largest egg producer. Rising commodities costs -- the same thing causing consumers to reel at the checkout counter -- have hit Cal-Maine, too. Sales volumes were up just 2%, as total revenue grew 1.3%.

Analysts seem to think Cal-Maine will absorb all those rising costs alone, noting that egg prices actually dropped slightly in the quarter. But with Wal-Mart warning that we should expect "serious" inflation in our shopping carts, it's entirely possible that Cal-Maine will eventually pass at least some of the rising costs to consumers. If even Wal-Mart's planning to raise prices, we'll surely see other retailers follow suit.

At the same time, Cal-Maine is trading for less than 10 times trailing earnings and an enterprise value-to-free cash flow ratio below 9, offering investors a particularly discounted opportunity. All-Star yooperking thinks that's eggs-actly why it will outperform the broad market averages: "Trading at less than 2 time BV and paying an annual dividend of 3%, this food stock is a buy."

Add Cal-Maine to the Fool's free portfolio tracker, and see whether future growth will be coming home to roost.

A sticky wicket
Video game developer Glu Mobile is generating huge interest as it adds venues for its gaming output. While the big news earlier this year was its partnership with NVIDIA (Nasdaq: NVDA  ) , the real catalyst for growth will be simply that it's not Zynga. You're not going to confuse Glu's Contract Killer with Farmville. There's a reason Call of Duty is such a huge hit on bigger platforms: It's a lot more fun than milking a cow. Adding that excitement to iPhones or Android-based devices ought to attract a big following to Glu's offerings.

Indeed, CAPS member TripleTheMarket says that bringing Call of Duty to the mobile platform is what sets Glu apart:

They are one of the few mobile players, sure to expand their market into tablets. Call of Duty is their product, huge success! Lots of potential withthis one.

If you want to stick to Glu's progress, you can monitor it by adding it to your watchlist.

A great opportunity for you
Investor sentiment suggests that 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.

Wal-Mart is a Motley Fool Inside Value, Motley Fool Global Gains, and Motley Fool Income Investor choice. NVIDIA is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a call spread position on Bridgepoint Education and a diagonal call position on Wal-Mart. The Fool owns shares of Bridgepoint Education, Cal-Maine Foods, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 

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


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  • Report this Comment On May 01, 2011, at 3:26 PM, bmc007 wrote:

    I got into GLUU awhile back and so far I'm pleased with its progress. I'm confident there is way more upside to it.

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