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
The data shows that stocks achieving five-star ratings on Motley Fool CAPS have outperformed the market by 12 percentage points. Newly minted five-star stocks represent your best opportunity to capture those returns. By sifting through CAPS' proprietary ratings system, we've found a handful of four-star firms approaching greatness:
- Amkor Technology (NASDAQ:AMKR)
- Cytori Therapeutics (NASDAQ:CYTX)
- DRDGOLD (NASDAQ:DROOY)
- Flamel Technologies (NASDAQ:FLML)
- Watson Pharmaceuticals (NYSE:WPI)
Some of these names might surprise you. Watson Pharmaceuticals, for example, has been offering both generic and higher-margin brand-name drugs for some time. 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 115,000-plus CAPS investors 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
Over the last two-and-a-half weeks, uncertainty in the markets has caused gold prices to skyrocket, from about $760 an ounce on Sept. 12 to more than $900 an ounce Monday. That led top-rated CAPS All-Star muirmm to suggest that gold producers and miners like DRDGOLD would stand to benefit. The continued uncertainty reigning over the markets now ought to keep gold prices high:
All the recently announced government bailouts will cause huge amounts of inflation, driving up the price of gold. That should be great for the stock prices of gold producers. Also, the prices of gold mining stocks have gone down recently far below the prices you might expect from looking at the price of gold, so they had reason to rebound anyway, even with no inflation.
While DRDGOLD, AngloGold Ashanti (NYSE:AU), and Gold Fields (NYSE:GFI) did enjoy a resurgence in their share prices over the past few weeks, Monday's panic was enough to drive down even their shares.
Elsewhere in the market, Flamel Technologies is a biotech whose time-release formulations should make it easier for patients to stick with their drug therapies. An injectible medicine, for example, can become more palatable if a shot only needs to be taken once daily, instead of several times a day. But Flamel has been hampered over the years by an inability to sign a significant number of deals.
While CAPS member timattox views the technology as very promising, given the current economic climate, he might hold off on a real dollar investment for now:
The technology they have is very unique AFAIK, and should allow [some] patients a much better life by reducing the frequency of injections. Also, for those who need to take pills several times a day to get the proper dosage without too much at once, their controlled release technology (though not as unique) is still quite good tech. I've been sitting out on this one for long enough. The potential upside from an announced new drug deal has now put this back into my CAPS portfolio. I could still be waiting a year to get the big pop, but there is no telling if it might be next week or next month either.
A great opportunity for you
With these four-star investments on their way to five-star greatness, 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. Let's us hear what you have to say about the great (and almost-great) companies that interest you.
On Oct. 7, 2008, Fool Co-Founder David Gardner and his Motley Fool Pro team will invest $1 million in a portfolio designed to help you make money in any market. In the coming weeks, the team, relying heavily on proprietary CAPS "community intelligence" data, will establish long and short positions in a broad range of securities, including common stocks, publicly traded put and call options, and exchange-traded funds (ETFs). To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.
