There will always be companies that are obviously great investments -- in hindsight. We all know we should have bought Starbucks at its IPO and earned hundredfold 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 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:
- The stock's rating -- "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 gets a rating, as does every stock. The best and brightest players are considered All-Stars, and since they're 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, we can sift through CAPS to find four-star companies approaching greatness:
Qiao Xing Universal Telephone
Silver Standard Resources
Some of the names you might find surprising. Jamba Juice, for example, isn't exactly a hidden corporate name anymore, as its juice joints have opened all across the country. Yet sometimes the most familiar names can be some of the best investment opportunities, if only because investors have forgotten about the potential they still hold. Just as meaningfully, the 76,000 investors on CAPS are giving these companies the nod as less obvious places to look for tomorrow's great buys. Let's delve into why these companies might merit your attention.
Shaking up Shanda
Forget its forays into game consoles and other distractions, Motley Fool Rule Breakers recommendation Shanda Interactive is focused on the growing obsession with online gaming in China. The company has put together consecutive quarters of growing revenues and profits. That success has helped Shanda take back some of the attention that had previously been showered on NetEase.com
Shanda's getting more attention on CAPS as well. All-Star SNHamilton, with a 98.85 player rating, might normally be reticent when it comes to investing in China. But rules are made to be broken, and he's willing to break them for Shanda:
I am not a big fan of investing in China, because I do not have a good feeling for what the government will or will not do as it relates to commercial companies. That said, I am a huge fan of profit margins and growth related to online gaming, which is enough to make me speculatively bullish on SNDA.
The potential is great for online gaming growth in China, but CAPS player meisalex also recognizes the potential dangers of investing there. Still, the player gives Shanda the thumbs-up:
Online gaming is not going away in China. It will grow. However Chinese society and its government frowns on video gaming. A law could be passed to ban all sales of video game items (micro-transactions). A related event occurred in Taiwan in the 90's to ban all arcades because it was causing junior delinquency. so the very same thing could happen in China. But the growth potential is immense for gaming in China.
A great opportunity for you
That's the bullish word on Shanda, but do you agree? Are these four-star stocks still investment-grade material? On Motley Fool CAPS, your input 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's us hear what you have to say about the great and almost-great companies that interest you.
For every post you make to CAPS or any Foolish discussion board in the month of December, The Motley Fool will donate $0.02 to charity. So give us your two cents, and we'll pay it forward! To learn more about the My 2 Cents campaign and how you can help us raise money for five very Foolish charities, check out our Foolanthropy site.
Shanda Interactive and Netease.com are both recommendations of Motley Fool Rule Breakers. Get a 30-day free trial check up to see all of the market-beating recommendations from any of the Fool's investment services.
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. The Motley Fool has a disclosure policy. Starbucks is a Stock Advisor selection.