Some companies are obviously great investments -- in hindsight. Sure, we should have bought Starbucks at its IPO and earned a 2,500% return over the years. Yet for every stock out there screaming "Buy me!" there are others that only 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 5,500 companies in the CAPS universe, but they're just shy of superstardom. The attention might be focused on their five-star peers, but we can sift through CAPS to find four-star companies approaching greatness:
- Automatic Data Processing (NYSE: ADP )
- China Direct (AMEX: CDS )
- SuperGen (Nasdaq: SUPG )
- Titan Machinery (Nasdaq: TITN )
- Avanex (Nasdaq: AVNX )
Do some of these names surprise you? Payroll processor ADP, for example, probably prints out the check you pick up every other week. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. However, the 93,000 CAPS investors chose these companies as less obvious sources for tomorrow's great buys, so let's see why they might merit your attention.
Making tracks for profits
Want to invest in China but don't know the best angle to play it? Metals? Alternative energy sources? Chemicals? How about all of them? China Direct is a management company looking for ownership positions in medium-sized companies. It also does consulting for companies based in China that want access to the capital markets here.
The mainstay of China Direct's model so far has been magnesium, generating more than half of the $44 million in revenues it earned last quarter. The company's chemical division chalked up another 36%, but it also has interests in toy companies, recycling technologies, and alternative energy companies. With one of the fastest-growing economies in the world and basic materials still in high demand, analysts are forecasting that when China Direct reports its financials at the end of the month, revenues will quadruple to $56.7 million with profits rising to $0.18 a share from the diluted EPS of $0.02 the year before. The two analysts that cover the company rate it a buy.
CAPS investors feel the same way. Some 95% of the more than 200 investors rating China Direct see it as outperforming the market. CAPS player AntyInvestor, for example, just recently found the investments the company made in its magnesium facilities position it for growth.
The 2007 financials will be anounced on March 31st and the growth will be significant. The consulting business has been going well and all the investments in Magnesium production are starting to give results. Growth will continue all through 2008 bacause of all the investments being done lately and the scheduled launches of new facilities. Investors will probably remain sceptic since this is a new company but they will become more relaxed with the release of more and more positive quaterly results.
Yet as CAPS player johnmcvay75 noted at the beginning of the month, China Direct is not for the faint of heart. It could be a long-term winner, but it is also highly speculative.
Their business models seems sound and once more analysts pick up on it i think it could be a 15 stock in a couple of quarters. It has a low PE for a company which is a China play which could have exponential growth for the next couple of years. But she is highly specualtive, not for the faint of heart.
A great opportunity for you
You've heard directly from CAPS investors on China Direct, but do you agree? Are these four-star stocks still investment-grade material? On Motley Fool CAPS, your input can ultimately influence how they're rated. Outperform or underperform, near-term or well into the future, your opinion counts.
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