These Stocks Beat Biotech Stocks

It seems like almost every day that a biotech company reports positive test data for a drug that sends its stock -- and investors' wealth -- soaring. But I've found investments from another sector that are surpassing even the gains of biotech stocks -- and I know where you can find out more about them.

Would the real hot stocks please come forward?
The 5,500-plus stocks that more than 115,000 Motley Fool CAPS community members have rated include descriptive "tags" that group them with other companies sharing similar qualities -- a country of origin, a sector, or an end product, for example. Clicking the Biotechnology tag pulls up a list of 294 stocks that have gained 19.8% in the past year.

But CAPS tags can lead you to stocks that have outpaced even the near-term returns from the Biotech group: Lasers. This group comprises four companies that have outperformed the returns of both the broader market and the Biotech group, with a 32.2% average gain in the past year.

Each group has its share of winners and losers, of course, but CAPS can be a great resource for zeroing in on potential opportunities in each area.

From macro to micro
You can sort tag groups by their CAPS ratings, from one to a maximum five stars, and then see which players -- from Wall Street to Main Street -- are bullish or bearish on a company, and why.

For instance, here are a few of the stocks in the Biotech group:

Company	CAPS Rating (out of 5)	1-Year Performance
ViroPharma (Nasdaq: VPHM)	*****	48.2%
Celgene	****	27.4%
Biogen Idec (Nasdaq: BIIB)	****	(12.2%)
Elan (NYSE: ELN)	***	(43.5%)

Sources: Motley Fool CAPS and Yahoo! Finance.

Now, based on the interest in the CAPS community, here are three laser stocks that investors may want to consider.

Company	CAPS Rating	1-Year Performance
II-VI (Nasdaq: IIVI)	*****	69.8%
IPG Photonics (Nasdaq: IPGP)	*****	10.1%
Rofin-Sinar Technologies (Nasdaq: RSTI)	*****	18.6%

Sources: Motley Fool CAPS and Yahoo! Finance.

Laser-like focus
Offering some key diversity in its customer base, II-VI’s lasers are used in a variety of industries to enable processes such as guiding weapons systems, performing laser surgery, and cutting metal. The company also sports a good level of regional diversification, with 42% of its revenue coming from outside the U.S. last year.

But one area where the company is not diversifying is product lines outside its competence in high-tech laser systems, such as its X-ray and gamma-ray radiation sensor division, eV Products, which it plans to sell. II-VI has decided instead to focus on its core strengths, which have helped grow the company nearly 20% per year during its 20-plus years as a public entity.

This tight focus at II-VI has been paying off -- in its latest quarter, the company announced sales growth of 31%, with the full-year bookings of new orders growing by 30%. The defense-contracting side of the business contributed substantially to the growth, and a recent acquisition helped grow the company’s military and materials segment, with customers like Raytheon and Lockheed Martin (NYSE: LMT) keeping orders strong. With the company increasing its fiscal-year 2009 guidance, a strong majority of more than 98% of the 1,224 CAPS members rating II-VI expect it to outperform the market.

A show of lights
Laser maker Rofin-Sinar also has a diversified customer base across the globe, with a large part of its revenue coming from China and the East Asian subcontinent. With the company predicting China to be one of its greatest sources of growth over the next 10 to 15 years, many investors see the company as well-positioned to capture this opportunity.

In its just-completed fiscal third quarter, Rofin-Sinar announced strong sales growth of 23% and an earnings-per-share increase of 20%, surpassing estimates. The company also reported a record order backlog and even sees softening demand from the machine-tool industry being offset by demand for smaller, precision lasers and those used to etch surfaces.

Not every metric is shining bright, though -- inventories and accounts receivable both swelled significantly larger than sales this quarter. However, with the growth in backlog, this situation may be temporary, and a strong contingent in CAPS believes it won't keep the stock from beating the market going forward -- at least, that's how 98% of the CAPS members rating Rofin-Sinar have voted.

Before you buy ...
Of course, what's happened in the past is no indicator of where investors should be putting their capital now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify trends that may significantly affect investments. Just make sure to do your own due diligence rather than simply following crowds or individual recommendations.