Stocks on the Road to Greatness

For every stock out there screaming "buy me," others simply give us a nudge and a nod. While their five-star peers get all the attention, 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 have a pair of stocks on their way to fame and glory.

Source: S&P Capital IQ. NM = not meaningful because of negative earnings.

As the 180,000-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
Pugnacious 8x8 is trying to corner the market in meeting the telecom needs of small and mid-sized businesses. Choosing a different course from the consumer VoIP business that Vonage (NYSE: VG) and magicJack VocalTec focus on with varying degrees of success, 8x8 has been largely successful because it's more than just making phone calls that makes 8x8 a leader. It also delivers cloud-based SaaS applications to businesses that have employees anywhere in the world and is trying to leverage that leadership position by now trying to attract large clients, too.

And that's where the risk comes in for investors. 8x8 is pursuing a growth-by-acquisition strategy that will have it competing against the likes of ShoreTel and others. It recently bought up Contactual, a call-center solutions provider that caters to a much larger clientele than the telephony specialist is accustomed to serving, perhaps taking it out of its comfort zone. The Contactual purchase was 8x8's third acquisition of the year, and it promises to make more in 2012.

While the deal itself seems like a smart move for 8x8, as it was doing a lot of business with Contactual, digesting a lot of acquisitions is dicey work and often gives investors heartburn as they become cumbersome to swallow.

CAPS member NHWeston thinks the parts 8x8 is assembling make it an attractive target itself.

Akamai showed how it's done, and I think 8x8 is a good buyout candidate. Like a collection of baseball cards, this company has a shoebox full of nifty little patents that could [propel] a deeper pocketed corporation [further] ahead of its rivals. On [its] own, it has no significant debt and plenty of money in the till. Win-win either way.

Put 8x8 on your watchlist, and let us know in the comments section below whether you think its growth strategy will stick in its craw.

Coal in your stocking
Falling prices and slack demand were the hallmarks of the coal industry in 2011, leaving the potential that 10% to 20% of coal-fired generating capacity could get shut down over the next five years. Little wonder coal miners like Patriot Coal saw its shares crushed, and the entire CAPS Coal sector was off more than 27% for the year.

For the industry to recover, it will look toward China and India for succor. Analysts estimate that demand in China alone will grow over the next five years by a total of 600,000 tonnes per day, and the International Energy Agency is forecasting higher prices over that same time period. Bolstering that view are reports that November coking coal imports were up 19% in China.

An obvious beneficiary will be Consol Energy (NYSE: CNX), which is the largest U.S. coal exporter, but Patriot has seen the percentage of its production tied to exports grow to 29% over the first nine months of 2011.

Coal-mining stocks are cheap these days. Patriot trades at less than its book value, but Arch Coal, James River Coal (Nasdaq: JRCC), and Alpha Natural Resources are cheaper still. James River trades at only around half its book value and at a quarter of its revenue over the past 12 months. Still, the CAPS community finds even Patriot's value attractive, as 96% of the members rating Patriot believe it will outperform the market in the future.

Tell us in the comments section below or on the Patriot Coal CAPS page whether you think its fate is that of the canary in the coal mine, and add it to your watchlist to see whether it can dig its way out of the hole it finds itself in.

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 if you're looking for just one energy stock to play in 2012, read The Motley Fool's free report, "The Only Energy Stock You'll Ever Need." But do it today, because, like low energy prices, it won't be around for long.