5 Stocks Approaching Greatness

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Some companies are obviously great investments -- in hindsight. Sure, we should have bought Starbucks at its IPO and earned hundreds of percent returns over the years. Yet for every stock out there screaming "Buy me!", others simply give us a nudge and a nod. How can we tell tomorrow's multibagger 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 rated stocks in the CAPS universe, but they're just shy of superstardom. While all the attention might be focused on their five-star peers, we can sift through CAPS and find four-star companies approaching greatness:

• CME Group (NYSE: CME)
• EZCORP (Nasdaq: EZPW)
• Agria (NYSE: GRO)
• Headwaters (NYSE: HW)
• Vertex Pharmaceuticals (Nasdaq: VRTX)

Some of these names might surprise you. CME Group, for example, runs the Chicago Mercantile Exchange and the Chicago Board of Trade, two of the world's biggest options and futures exchanges. 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 110,000 CAPS investors chose these companies as less obvious sources for tomorrow's solid buys, so let's see why they might merit your attention.

The kernel of an idea
Crop seeds -- whether soybean, corn, or wheat -- are a big business in China. Behind the U.S., China is the second-largest producer of corn in the world with almost three-quarters of production going to animal feed. It is also the world's biggest shepherd with flocks of both sheep and goats; the Chinese consume the most mutton and wool of any country.

Sitting in the midst of those demographics is Agria, a Chinese purveyor of both corn seed and sheep herds. Yet its IPO here has had a rough go of it, coming as it did as the market for Chinese companies experienced a lull in enthusiasm. There was a stumble over compensation to a management player who resigned in a huff, and that didn't help, either. CAPS investor strelioff thinks the sell-off has been overdone, but finds that due diligence on the part of anyone wanting to invest here is essential. The ties that bind Agria are a complex web.

Never underestimate how important due diligence is. ... Agria's 2 strongest earning Q are to be reported next. ... Mr. Zhixin Xue resigned from Agria. ... The largest shareholder of Agria is Mr. Guanglin Lai. ... Mr. Zhixin Xue still works for Primalights III. ... The largest shareholder of Primalights III is the wife of the largest shareholder of Agria. ... [Agria] is just a holding company for [Primalights III] which is what the actual revenue producing body of the company.

Pawning off concern
EZCORP is another company that seems to have run into a wall. The pawn shop operator and payday lender has found its industry under attack from regulators, legislators, and activists who don't like and can't appreciate the services it provides to what's called the "subprime" market. Limitations imposed on fees that can be charged are making the business increasingly unprofitable.

Its EZPAWN shops, however, comprise two-thirds of its revenue and operating profit, allowing the company to be less exposed than industry leader Advance America (NYSE: AEA) to the quixotic advances of those seeking to put payday operators out of business. Moreover, with gold prices remaining high and gold jewelry totaling roughly 60% of pawn loan collateral, it is able to realize higher margins on that pawned jewelry, allowing it to benefit from the economy's difficulties.

CAPS investor mugwumper12 finds EZCORP's valuation, as well as its concentration in Texas, where confiscatory regulation is unlikely to be a problem, to be attractive in this recent pitch:

Not a glorious segment ... and a tinge of "financial" keeps it down. But it's got a Forward P/E under 9, and a 20% ROE. No debt ... The only potential downside is government regulation. But [EZCORP] operates primarily in Texas and the [Southwest] where regulation is not on the horizon, and it is expanding its business in Mexico.

A great opportunity for you
You've heard directly from CAPS members, but do you agree? Are these four-star stocks 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 as it is completely free. Let us hear what you have to say about the great and almost-great companies that interest you.