5 Stocks Approaching Greatness

• Email
• Share
• Print

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
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 get those returns. So let's sift through the proprietary ratings system and find those stocks heading toward stardom. Here are a handful of four-star companies we found.

• Garmin (Nasdaq: GRMN)
• Intuitive Surgical (Nasdaq: ISRG)
• NovaGold Resources (NYSE: NG)
• Oracle (Nasdaq: ORCL)
• Pfizer (NYSE: PFE)

Some of these names might surprise you. Some view GPS maker Garmin as having lost its advantage, with its stand-alone devices soon becoming a thing of the past. Others say it's evolving. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. However, some of 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
It might become more commonplace to see pharmaceuticals like Pfizer using the power of a merger to shore up a lagging pipeline. Its $68 billion blockbuster bid for Wyeth (NYSE: WYE) opens up a lot of possibilities: Perhaps a debt headache will become the biggest one. Pfizer will make the purchase with a $22.5 billion bridge loan that, analysts expect, will carry interest rates that are seven and nine percentage points more than Treasuries.

CAPS All-Star EggplantWizard said it doesn't take intimate knowledge of the pharmaceutical industry to understand that trying to swallow a too-large deal is going to leave investors with indigestion.

Because I don't have a firm opinion on the fate of health care, I'm actually mostly neutral on Pfizer -- but I'm very confident that the Wyeth acquisition will lead it to dramatically underperform the healthcare sector, and likely the S&P. The Wyeth acquisition will kill this company's future growth prospects. First off, Pfizer is overpaying. Wyeth has significant unresolved product liability concerns, and Effexor XR, their largest selling product, is a short hop-skip and a jump away from generic competition.

Robot chicken
A large question hanging over the medical device industry is whether the recession will take a toll on the capital budgets of hospitals, hurting companies like Intuitive Surgical. Its minimally invasive da Vinci System wins top honors for assisting doctors in the operating room, but fear of spending cutbacks affecting sales has hurt its stock. Kinetic Concepts (NYSE: KCI) is another innovator like Intuitive Surgical, yet that has made Intuitive Surgical cheap.

Still, the short-term impact on its share price leads CAPS member hevElee to think there will be better opportunities to get in at an attractive price.

While the short-term prospects of selling more systems isn't great because of hospital budget pressures, the long-term prospect for this company is great. With the coming generation of doctors growing up using video game controls and consoles, surgeons will be clamoring for less "hands-on" operations and more tech assisted options. This along with the increased precision of this system and growing number of procedures available for doctors to perform via da Vinci will create greater and greater market possibilities.

A great opportunity for you
These four-star investments might 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.