5 Stocks Approaching Greatness

There will always be companies that are obviously great investments -- in hindsight. Through the rearview mirror, we know we should have bought Microsoft or Wal-Mart at their IPOs and realized 10,000%-plus returns over the years. Yet for every stock out there screaming "buy me," there are others that simply give us a nudge in the ribs and a knowing nod. They may be tomorrow's obviously great investments, but how do we tell them from the thousands of pretenders?

The stars' walk of fame
Over on our investor-intelligence community, Motley Fool CAPS, we know these opportunities as four-star stocks, companies that rank higher than most of the other 5,000 stocks in the CAPS universe but are just shy of achieving true stardom. In the long shadows of stocks that garner the coveted five-star rating are top-tier companies approaching greatness.

While the full "secret sauce" of how the ratings are calculated is kept proprietary, there are three factors that influence a stock's star rating:

  • Whether a stock is rated "outperform" or "underperform"
  • The length of time expected for it to achieve this performance (a few months or a few years)
  • The ratings of the investors who make the picks

Every player is rated, just as every stock is rated. The best and brightest of these players are considered All-Stars, and since they are correct more consistently than their peers, their opinions weigh more heavily in favor of (or against!) a stock.

Searching out of the spotlight
So while all the attention might be focused on the five-star stocks, good investments slip under the radar with only four stars. Yet we can sift through the CAPS database to find some of these four-star companies approaching greatness:

  • ExxonMobil (NYSE: XOM  )
  • Texas Instruments (NYSE: TXN  )
  • Intuitive Surgical (Nasdaq: ISRG  )
  • LJ International (Nasdaq: JADE  )
  • Northgate Minerals (NYSE: NXG  )

You might find some of these names surprising. After all, if you've ever needed to fill up your gas tank, you've probably passed an Exxon station. But sometimes we find that the most familiar names can mean some of the best investment opportunities, because we've forgotten about the potential they still hold. Just as meaningful, the 65,000 investors on CAPS are giving these companies the nod as less obvious places to look for tomorrow's great buys. So let's delve into why these companies might merit your attention.

A surgical strike
It's these long-term opportunities that can earn you the greatest profits. Intuitive Surgical, obviously enough, makes surgical tools that assist doctors in performing less invasive treatments than previously available. Its da Vinci system translates a surgeon's hand movements into precise instrument movements inside the patient without the need for open surgery. I can attest that in my area, hospitals that have this system are advertising its availability on billboards and elsewhere.

CAPS All-Star InvestorDeb, with a 93.45 player rating, admits to getting "giddy" over her investment in the Motley Fool Rule Breakers recommendation. Her pitch (the top bullish pitch on the stock) outlines her reasons for such antics.

The ISRG 2Q07 conference call was obviously great fun if you are long the stock. They are selling these systems all over the world. Hospitals that have the basic daVinci system, are able to upgrade to higher definition imaging and extra robotic arms. The patented technology allows for a wide and deep moat around the brand, which means that it is extremely difficult to compete directly with the core business.

ISRG makes a product and embraces a technology where everyone comes out a winner. Patients benefit from more precise surgery with quicker and more complete healing. Doctors and hospitals attract more surgeries if they can perform them on these systems, and since the healing time is less and the surgeries more successful, they can service more patients in less time with less lawsuits brought on by botched surgeries, complications [resulting] from infections, etc. Managed care companies benefit from reduced hospital stays and better patient results.

Another All-Star, Kinzo, has also attested to seeing a local hospital advertising its da Vinci system and believes it'll be a bigger success "once other hospitals get on the bandwagon."

A great opportunity for you
That's the current word on Intuitive Surgical, but what are your thoughts? Are the four-star stocks named above still investment-grade material? On Motley Fool CAPS, you can give your input, which can ultimately influence how they're rated. Outperform or underperform, near-term or well in the future, your opinion counts.

Sign up today for Motley Fool CAPS -- it's completely free. Let's us hear what you have to say about the great (and almost great) companies that interest you.


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