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 approaching greatness.
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Federal Agricultural Mortgage
(NYSE: AGM) -
Harbin Electric
(Nasdaq: HRBN) -
RINO International
(Nasdaq: RINO) -
Sinovac Biotech
(NYSE: SVA) -
Tyco
(NYSE: TYC)
Some of these names might surprise you. For example, Sinovac Biotech may end up getting investment money from Bill Gates, who aims to fight global illness with the sort of vaccines this Chinese biotech develops. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold.
Conglomerate Tyco has been attracting several smart Fools; they consider it a better investment than General Electric
In the sight of greatness?
After the collapse and government takeover of Fannie Mae and Freddie Mac, it might be natural to assume that other government mortgage entities such as Farmer Mac -- the nickname for Federal Agricultural Mortgage -- would poses a similar risk to taxpayers. Yet Farmer Mac has managed to avoid many of the same miscues, and investors are warming up to its prospects.
Its earnings results took a hit from the big losses racked up by ethanol producers, but Farmer Mac has since reduced its exposure there. Ethanol loans comprise 19% of its 90-day delinquencies, compared with 44% a year ago. While agricultural commodities such as corn and wheat are enjoying rising prices -- leading fertilizer makers such as Mosaic and PotashCorp
CAPS member liverless says the depressed valuation Federal Agricultural Mortgage displayed in years past didn't necessarily result from bad business decisions:
Such an interesting story. The company went to $2 in 2008 along with a lot of other lenders, but the reason they fell was not a bad loan book. They had put their excess reserves into Fannie stock and Lehman stock, and when those companies went down their capital and liquidity dried up. Company lends to farmers and has low loan losses, trades at 6x core earnings and has a book value of $17. With ag prices high and rising I think business will continue to boom.
On the shoulders of giants
CAPS members like highly rated All-Star fps32 believe the CEO of Harbin Electric realizes the company's true value. That may be why he's offering a low-ball bid for the company to take it private:
If you consider the 52-week high of $26.00, Mr. Yang is low-balling the stock with his buyout offer of $24.00 per share. An investigation by legal firm Tripp Levy is already underway. Mr. Yang will likely have to up his offer to exceed the stock's previous high before shareholders can approve the deal.
Few people are happy with the offer. The trial-lawyer sharks quickly began circling Harbin, looking to drum up support for class action lawsuits. The $24-per-share offer, totaling $752 million, represented only a 20% premium to what the stock had been trading at. The insiders who own nearly 40% of the company might want more for their shares, too.
A big opportunity
Chinese wastewater treatment specialist RINO International has been laughing at Wall Street. Its revenue and earnings surpassed estimates, even though its stock has been trading well below its 52-week high. RINO also manufactures and installs environmental protection equipment for the iron and steel industry in China; its core flue gas desulphurization segment saw revenue jump 41%, and there's a huge backlog for municipal sludge treatment.
That might put RINO in a position to catch up to Westport Innovations. The latter company's trading nearly 62% higher since the start of 2010. Chinese water treatment equipment maker Duoyuan Global Water, meanwhile, has fallen by that same percentage in the same time period.
CAPS member GundersonGroup has its doubts about RINO, pointing out red flags in the company's financial statements.
120M in A/R with only 7M in payables outstanding? While I understand that the Chinese government is forcing many companies to undertake public projects at the expense of Western capital I would have still expected their payment cycles to resemble most firms in their type of business. This suggests that they have overinflated their revenue or they are hiding their costs in another company.
A great opportunity for you
Investor sentiment suggests that these four-star investments still seem to be on their way to five-star greatness. Nonetheless, 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.
