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 5,400 starred companies, but they're just shy of superstardom. While all the attention might be focused on their five-star peers, we can sift through CAPS to find four-star firms approaching greatness. Here are a handful of four-star firms doing just that.
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Apple
(NASDAQ:AAPL) -
Dynegy
(NYSE:DYN) -
RAIT Financial Trust
(NYSE:RAS) -
Take-Two Interactive
(NASDAQ:TTWO) -
United States Oil
(NYSE:USO)
Some of these names might surprise you. Apple is already a dominant icon not only in computers and personal music players, but in smartphones, too, and perhaps TVs before long. 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 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
Designed to track the price of West Texas Intermediate light, sweet crude oil, the United States Oil ETF is now a behemoth that is actually impacting prices, according to a story in the Wall Street Journal. It accounts for 22% of the front-month contracts and contributes to the decline in oil's price when it rolls over those contracts as they near expiration. After all, the ETF doesn't actually want to take delivery of all that oil, so it dumps the contracts and buys new ones.
Certainly, demand for oil has a role to play in its price, so we can't pin all the blame (or praise, as the case may be) on USO when it comes to the low levels at which oil currently trades. Timing can also be a key element in this investment, and you can be too early or too late -- or, as CAPS All-Star member JosephOrJoe calls it, "wrong," as he says he was. But there are still factors in play that will allow him to make it right:
I was early (aka wrong) on USO. If I hadn't already bought some, I'd buy some now. In 6-12 months either inflation or a recovering economy (or both) will drive up oil.
Yet don't look for the oil companies to run in tandem with the ETF. Giants like ExxonMobil
Standing on shoulders of giants
RAIT Financial Trust is a real estate investment trust specializing in commercial mortgages, as well as acquiring real estate loans in default or forbearance. This is perhaps not the best market in commercial real estate, but if RAIT is interested in picking up more distressed mortgages, there will undoubtedly be a wider variety to choose from. According to the industry research firm Real Estate Economics, the default rate for commercial real estate mortgages will more than double this year from the rate seen in the fourth quarter, and will continue growing until it peaks sometime in 2011. Conditions like those may also serve to put extreme pressure on RAIT's operations.
CAPS member dirtpoorfool thinks that if RAIT Financial is able to last through this recession, it should return to its previous values:
[RAIT Financial] has continued to pay dividends through the start of this recession. At this current price, heavily depreciated from their historic levels and still paying a dividend, I couldn't resist! I think there will be more buying opportunities before the market returns to a bullish pattern; should this company survive to the other side of the recession and return to its previous values, this will be a major gain on my holdings.
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 us hear what you have to say about the great -- and almost great -- companies that interest you.
