There will always be companies that are obviously great investments -- in hindsight. Through the rearview mirror, we know we should have bought Starbucks at its IPO and realized thousand-percent-plus returns over the years. Yet for every stock out there screaming "buy me," there are others that simply give us a nudge in the ribs and a knowing nod. They may be tomorrow's obviously great investments, but how do we tell them from the thousands of pretenders?
The stars walk of fame
Over on the investor-intelligence site Motley Fool CAPS, we know these opportunities as four-star stocks -- companies that rank higher than most of the other 5,000 stocks in the CAPS universe, but are just shy of achieving stardom. In the long shadows of stocks that garner the coveted five-star rating are top-tier companies approaching greatness.
While the full "secret sauce" of how the ratings are calculated is kept proprietary, there are three factors that influence a stock's star rating:
- Whether a stock is rated "outperform" or "underperform."
- The length of time it is expected to perform (a few months or a few years).
- The ratings of the investors who make the picks.
Every player is rated, just as every stock is rated. The best and brightest of these players are considered All-Stars, and since they are correct more consistently than their peers, their opinions weigh more heavily in favor of (or against!) a stock.
Searching out of the spotlight
So while all the attention might be focused on the five-star stocks, good investments slip under the radar with only four stars. Yet we can sift through the CAPS database to find some of these four-star companies approaching greatness:
Archer Daniels Midland
You might find some of these names surprising. Pharmaceutical company Abbott Labs, for example, isn't exactly a hidden corporate name, particularly if you have rheumatoid arthritis and take its Humira for relief. But sometimes the most familiar names can mean some of the best investment opportunities, simply because we have forgotten about the potential they still hold. Just as meaningful, the 76,000 investors on CAPS are giving these companies the nod as less obvious places to look for tomorrow's great buys. So let's delve into why these companies might merit your attention.
XOMA set to xoom?
Investors in XOMA -- a biotech that develops products to treat infectious diseases, immunological and inflammatory disorders, and cancer -- are aware that what can be a boon to growth today can also serve to crush it tomorrow. This 26-year-old biotech has traded as high as the $30s (in the early 1990s), but it's currently sporting a penny-stock price below $5 a share. Yet sales of its psoriasis drug Raptiva, which it collaborates on with Genentech
Equally impressive is that Schering-Plough (and others) has decided to expand its collaboration with XOMA, which seems to underscore the validity of its R&D program. It's the expanded deals that also have CAPS investors like STORMSTOCKER seeing the outperformance potential.
ANTIBODY [THERAPIES] THAT ARE NOW LICENSED TO SEVERAL DRUG COMPANIES, LIKE [PFIZER], ETC.ETC.ETC.....THIS IS A GROWTH STOCK PLAY ON GUT FEELING ALONE,SALES......NO EARNING YET, BUT, [THEIRS] IS A MORE, "[NATURAL] WAY", TO ATTACK CANCERS, MACULAR DEGENERATION,ETC.ETC.USING THE BLOOD'S NATURAL-HEALING PROCESSES,(ATTACK CELLS-ANTIBODIES).THAT GO AFTER THE [DISEASED] CELLS OF THE BODY/BLOOD KILLING AND SWEEPING OUT THE" BAD-GUY CELLS" WILL IT WORK? THE DRUG COMPANIES THAT ARE LICENSING THEIR [KNOWLEDGE] THINK SO....SO WHY NOT ME?
New opportunities, expanded agreements, and newly profitable -- XOMA might just be ready to zoom.
A great opportunity for you
That's the current bullish word on XOMA, but do you agree? Are these four-star stocks still investment-grade material? On Motley Fool CAPS, you can give your input, which can ultimately influence how they're rated. Outperform or underperform, near-term or well in the future, your opinion counts.
Sign up today for Motley Fool CAPS -- it's completely free. Let us hear what you have to say about the great (and almost great) companies that interest you.
Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. Starbucks is a Motley Fool Stock Advisor selection. The Motley Fool has a disclosure policy.