2 Stocks Approaching 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: Motley Fool CAPS.

As the 180,000-member CAPS community has chosen these two companies as less obvious sources for tomorrow's great buys, let's see why they might merit your attention.

In the sight of greatness
Gunmakers are shooting out the lights! Smith & Wesson Holding (Nasdaq: SWHC) saw its stock soar 20% on Friday after reporting significantly higher sales, and Sturm, Ruger (NYSE: RGR) went along for the ride, jumping 11%.

FBI background checks for firearms purchases have soared almost 64% since 2006, and so far in 2012, they're running 11% ahead of the pace set in the same period last year (which itself was up 15% from the year before). While the law-enforcement agency says there's no one-to-one correlation between background checks and gun sales, one can still make the assumption that if more people are looking to buy guns, there are going to be more sales. Ruger had to actually stop taking orders at one point because it couldn't keep up with demand.

Later this month, sporting-goods store Cabela's will be reporting second-quarter earnings, and I'm expecting it to beat analyst expectations once again. Its core retail business has been on target, and first-quarter guns and ammo sales were particularly strong (as was fishing, though I'm assuming people weren't using the one to get the other) and with the gunmakers aiming for higher growth still, I'm willing to wager Cabela's will see similarly strong growth this time around.

It's probably why more than 97% of the CAPS All-Stars weighing in on Cabela's think it will outperform the broad market indexes going forward. Add the sporting-goods retailer to the Fool's free personalized stock-tracking service to see whether it scores another bull's-eye, and then let me know in the comments box below whether you think its stock will shoot higher.

Zip, zero, zilch
It's been four months since I rated Zipcar on CAPS to underperform the market, and I'm not surprised it's been a winning bet for me. Although the stock bounced up some 33% from its absolute lows, I'm still not seeing this as a broad-based growth opportunity. I've admitted that because I'm a suburban dweller and avoid cities as if they're in the grips of a plague I might not see the benefit of the business model, but for a company with no competitive moat to protect it, Zipcar still trades at more than 33 times expected earnings, which suggests to me it has a lot more room to fall before it hits bottom.

I don't see any benefit to Zipcar's first-mover status in the car-sharing business. Hertz, Avis (NYSE: CAR), and car2go have started their own services. Since the concept of car-sharing is not widely known, there's little mindshare amongst consumers about who is "best." Thus, Zipcar derives no benefit from having launched a new car revolution should the car-rental companies start advertising the heck out of their businesses or consumers learn of car2go's lower cost model.

Current users may stick by Zipcar, but bringing new customers in might not prove as easy now that there are bigger, better-financed rivals. Thus, I have no intention of changing my underperform rating, and I agree with BCNMatador when he argues that "Hertz, Enterprise, or any other large rental car company could easily replicate this service and they have the fleet in place to do it."

But add Zipcar to your Watchlist, and tell me in the comments section below or on the Zipcar CAPS page why you think it's about to ride off on a new growth trajectory -- or is poised to crash and burn.

A great opportunity for you
Investor sentiment suggests that these four-star investments are on their way to five-star greatness, and while guns and autos may have different futures ahead of them, there's a new revolution coming that will disrupt how you think about industry. You can read The Motley Fool's report on "3 Stocks to Own For the New Industrial Revolution" that points the way to who will be standing conventional wisdom on its head. This report will be available only for a limited period. Get it before it's gone!