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
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 5,400 starred companies, but they're just shy of superstardom. While all the attention might be focused on their five-star peers, we can sift through CAPS to find four-star firms approaching greatness. Here are a few examples:
- Medarex (Nasdaq: MEDX )
- Onyx Pharmaceuticals (Nasdaq: ONXX )
- Questcor Pharmaceuticals (Nasdaq: QCOR )
- Crosstex Energy (Nasdaq: XTXI )
- Henry Schein (Nasdaq: HSIC )
Some of these names might surprise you. Henry Schein, for example, has been a premier medical distributor for over 75 years, with more than 550,000 customers. 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 125,000-plus CAPS members chose these companies as less obvious sources for tomorrow's great buys, so let's see why they might merit your attention.
In the sight of greatness
Some 600,000 people worldwide succumb to the effects of liver cancer every year, and more than half of them are in China. As depressing as that figure may be, for a pharmaceutical company it represents a strategic opportunity, one which Onyx Pharmaceuticals and its partner Bayer hope to exploit; they received approval last year to sell kidney and liver cancer therapy Nexavar there.
Global sales of Nexavar have already grown to $677.8 million and jumped 41% year-over-year in the fourth quarter to more than $176 million. The treatment is approved in more than 70 countries for combating kidney cancer and is used in more than 60 countries to fight liver cancer. Adding China to the list of countries should help those sales surge further.
As promising as it sounds, there's a chance that Onyx might not have enough of a pipeline to keep it from becoming just a one-hit wonder. Nexavar is up against similar therapies offered by Wyeth (NYSE: WYE ) and Pfizer (NYSE: PFE ) , making extrapolations of growth more difficult. And post-merger, those two will undoubtedly realize some economies of scale that ought to allow their treatments to be more profitable.
With Nexavar on the path toward FDA approval for additional treatments -- for lung cancer, breast cancer, and melanoma, among other things -- it may prove a long-term winner for Onyx. But the company and its investors may also fall prey to the fate of other highfliers like Dendreon, which have yet to recapture their glory days after falling from grace. Last weekend, top-rated CAPS All-Star member zzlangerhans took a look at the fact that half the profits from Nexavar are split between Onyx and Bayer:
I'm a long-term Onyx bull as stated in a prior outperform pitch: "Nexavar is currently a 500M/yr drug of which 50% goes to Onyx. Just on the basis of that the valuation of the stock should be higher, let alone the clearly increasing sales trend due to recent expansion of use to hepatocellular carcinoma." The share price has pulled back ahead of Monday's conference call, and I don't see any reason to expect bad news. I'm looking for some biotech bouncebacks and Onyx has been a solid performer to date.
A great opportunity for you
These four-star investments seem to be on their way to five-star greatness, and it pays to start your own research on these stocks 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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