Some companies are obviously great investments -- in hindsight. Yet for every stock out there screaming "buy me," others simply 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
The data shows that stocks achieving five-star ratings on Motley Fool CAPS have outperformed the market by 12 percentage points, and newly minted five-star stocks represent your best opportunity to capture those returns. So let's sift through the proprietary ratings system and find those stocks heading toward superstardom. Here are a handful of four-star companies approaching greatness.
- Drew Industries (NYSE: DW )
- Hansen Natural (Nasdaq: HANS )
- Illumina (NYSE: ILMN )
- McMoRan Exploration (NYSE: MMR )
- Western Digital (NYSE: WDC )
Some of these names might surprise you. Hard-drive maker Western Digital, for example, has been storing our computer data for years. 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 115,000-plus CAPS investors chose these companies as less obvious sources for tomorrow's great buys, so let's see why they might merit your attention.
In sight of greatness
High-energy-drink maker Hansen Natural is a stock that is both a former monster market performer, having been one of the best investments over the past decade, and quite possibly a future one as well. Although earnings performance recently has been below analyst expectations, margins have continued to improve, which has helped power its Monster energy drink ahead of former leader Red Bull. Hansen has the sweetness Jones Soda (Nasdaq: JSDA ) apparently lacks, and CAPS member tmd6966 loves the growth potential that's not priced into the shares:
This 2.2 Billion dollar company has only 400 employees; and sports returns on equity (ROE) north of 45% with a profit margin of 25%... [J]ust go to any convenience store or even [Wal-Mart Stores] & you will see the little Monster coolers. It is just my opinion, but I don't think I have seen a brand as prominently displayed in so many locales with the exception of Coca-Cola. (Now I know that [Coca-Cola] is the number one most recognizable brand in the world, but that did not happen overnight, and my point is that [Hansen] is making some very, very smart moves, and the potential growth in market share is not priced in at 15x earnings.
Even with the recent pullback in the price of oil, the potential for further exploration and drilling can be a boon to McMoRan Exploration, which seeks oil and gas in the Gulf of Mexico and also has onshore activities. CAPS member lulamae12 found insider buying -- a company director who's also a director at gold and copper miner Freeport-McMoRan Copper & Gold (NYSE: FCX ) recently bought (at market prices no less) -- to be a sign of confidence in the company's future, writing, "With the price of oil and natural gas products, this stock is a sure fire pick!!!"
Although alternative energy grabs the headlines these days, there was a time when biotech investing was the rage, and one company that has the potential for future growth is biochip maker Illumina. The Motley Fool Stock Advisor recommendation recently grabbed some cash from a secondary offering, and while some investors are concerned, CAPS member PhillyDan sees its acquisitions as its path forward:
Illumina has what many consider the leading technology in the field of reading genetic codes in biological samples and noting the differences in individual genes and how those differences could correlate with disease. They just made a very smart syngeristic acquisition of Avantome, a privately held company that will give Illumina complementary sequencing technology which involves reading and mapping the order of genes in a person's genome. In addition is has raised earnings guidance for 2008 and expectations are for rapid growth revenue and earnings growth over the next few years.
A great opportunity for you
These four-star investments may be on their way to five-star greatness, and it pays to start your own research on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page.
Sign up today for the completely free service and let us hear what you have to say about the great and almost great companies that interest you.
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