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 companies approaching greatness. Here are a handful.
- BSD Medical (Nasdaq: BSDM)
- China Yuchai (NYSE: CYD)
- Genzyme (Nasdaq: GENZ)
- Resource Capital (NYSE: RSO)
- TD AMERITRADE (Nasdaq: AMTD)
Some of these names might surprise you. For example, biotech Genzyme is being pursued by sanofi-aventis, which offered $69 a share in a hostile bid for the company. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold.
TD AMERITRADE also has been a top discount broker that found itself a more financially secure rival to E*Trade Financial (Nasdaq: ETFC). However, the 170,000-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?
Although China represents BMW's third-most important market for its luxury cars behind Germany and the U.S., they're already expecting it to become the top market soon enough and are building out capacity there in the form of a new factory. Coupled with being granted permission to establish an auto finance company in China, cars are ready to take off.
That fits right in with survey conducted by global management consulting firm A.T. Kearney earlier this year that found roughly 75% of auto suppliers expect double-digit growth in China. Johnson Controls, for example, has 23 joint ventures and 40 manufacturing facilities in China.
Perhaps the biggest beneficiary will be China Yuchai, one of the top auto parts suppliers in the country and one which CAPS member dckid expects to be in expansion mode: "Part of the growing market in China pertaining to industrial engines, with the capacity to expand."
On the shoulders of giants
Admittedly, it's hard to look past Resource Capital's dividend yield of 15.6% and not want to buy into the REIT. Another similarly situated real estate investment trust, Annaly Capital (NYSE: NLY), also has a yield north of 15%. Yet chasing the fattest dividends can be dangerous, and investors need to use caution when evaluating the sustainability of a company's payout.
With Resource investing in commercial real estate debt and other commercial finance assets, the CRE market is not for the faint of heart these days. Office vacancy rates just hit a 17-year high, and while rents may be stabilizing, the sector has some $1.4 trillion worth of debt coming due within the next three years. If there's going to be a recovery, it better hurry up and get here soon.
Realexdivy thinks Resource Capital is sufficiently sound to warrant further investment, particularly since it has shown strength with its dividend.
RSO paid a "meaningful" cash dividend throughout the crisis. The CEO provides visibility on the dividend, and has mentioned efforts to begin growing the dividend. The price is artifically low because of a recent follow-on offering, where stock was sold at a discount. Nevertheless, the dividend was not decreased and will continue at current rates (because they used funds to buy back notes at a discount, book value remained unchanged). This is a $12 stock trading at $6 with a $1 annual dividend.
A big opportunity
BSD Medical is a company I have trouble getting excited about. A few years ago I looked at the maker of a unique hyperthermia treatment for cancer and thought investor enthusiasm was a bit overheated. That hasn't changed. It keeps touting its devices as the next advent in cancer treatment, but in the latest quarter it didn't sell a single device, and any revenues is does make more often than not comes from sales to the company of one of its directors. Huge percentages of related party transactions typically come from sales to board member Dr. Gerhard Sennewald.
BSD got a big boost back in August when the FDA approved its MTX-180 system for commercialization in the U.S., immediately after which it did a financing of more than 1.2 million shares to capitalize on the run-up in the stock. And late last month it touted the fact that Texas Oncology acquired one of its BSD-500 systems. Note, the press release says the facility "acquired" a system rather than purchased one from BSD. Whether that's one in the same is anyone's guess.
With the stock trading at 58 times sales when it hasn't even had any, I'd say it's way overpriced and due for a fall. But you can criticize me in the comments section below, or better yet, head over to the BSD Medical CAPS page and let us know what you think about the hyperthermia device maker.
A great opportunity for you
Investor sentiment suggests these four-star investments still seem to be on their way to five-star greatness, but 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.
