5 Stocks Approaching Greatness

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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 5,300 starred companies, but they're just shy of superstardom. While their five-star peers get all of the attention, we can sift through CAPS to find four-star companies on their way to greatness. Here are a handful of them.

• Arena Pharmaceuticals (Nasdaq: ARNA)
• Cell Therapeutics (Nasdaq: CTIC)
• Human Genome Sciences (Nasdaq: HGSI)
• MF Global (NYSE: MF)
• Westport Innovations (Nasdaq: WPRT)

Some of these names might surprise you. Biopharmaceutical Human Genome Sciences, for example, has been at the forefront of genome sequencing and drug development. 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 130,000-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?
Feasting on mixed results from Arena Pharmaceuticals' obesity treatment lorcaserin, the early money said the biotech would be a bust. Although some smart Fools think Arena's research data points to a possibly successful drug, though perhaps not a blockbuster, the company still has two more phase 3 trials in progress, so there's still plenty of opportunity for definitive results.

Marketing lorcaserin as a successful standalone drug, Arena might generate even greater profits in its own right. But might it also be possible to use lorcaserin in connection with other drugs, such as the appetite suppressant phentermine, if the combination could be just as successful? VIVUS (Nasdaq: VVUS), for example, pairs phentermine with the active ingredient in Topamax from Johnson & Johnson (NYSE: JNJ), for VIVUS' weight-loss treatment Qnexa. Considering the safety profile lorcaserin already enjoys, additional pairings might be possible.

In the meantime, Arena is preserving cash by laying off 31% of its workforce. Considering that its losses narrowed on slightly higher revenues in the first quarter, and with its $70 million in cash and short-term investments, there doesn't appear to be too much concern that Arena will implode before it files a new drug application by year's end. Still, the company is focusing its efforts on lorcaserin and deferring any new clinical trials for other programs.

Investors are anticipating similar, if not better, news on lorcaserin when further results are reported later this year. CAPS member boyceh66 says the stock's decline represents an opportunistic entry point.

The news last week revealed 2 year statistics good enough to get FDA clearance, so Lorcaserin WILL be approved, and much revenue will result. It has advantages over Alli and Zenical. The short-term share price decline is a good buying [opportunity] since we know from digging into available data that the drug has performed better for patients over 6 months of usage than 1 year, and better over 1 year than 2 years ... and the next data to be revealed in September is for the shorter 1 year trial. Good news will come in September, and today's price will look like a great entry point.

Yet you can't dismiss out of hand the concern that approvals might not be forthcoming. There are too many examples of stocks soaring on hopes, and then crashing and burning when reality sets in. Following the reporting of the results for its drug Provenge, Dendreon's stock chart for the past few years looks like an EKG after the patient's heart was hit with a defibrillator. The payoff for investors' belief was a long time coming, and Arena investors may face a similar wait.

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's hear what you have to say about the great -- and almost great -- companies that interest you.