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3 Stocks Approaching Greatness

By Rich Duprey - Updated Apr 6, 2017 at 9:09PM

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Investors can find great investments by looking beyond the glare of top-rated stars.

For every stock out there screaming "buy me," others simply give us a nudge and a nod. While all the attention might be focused on their five-star peers, we can sift through Motley Fool CAPS to find four-star stocks giving us the "high sign" they're approaching greatness. 

These opportunities -- including familiar names and beaten-down companies -- rank higher than most of the other 5,400 starred companies, and it pays to investigate their potential. For consideration today, I've got this handful of stocks on their way to fame.

  • Internap Network Services (Nasdaq: INAP)
  • Local.com (Nasdaq: LOCM)
  • Smith Micro Software (Nasdaq: SMSI)

As the 170,000-plus CAPS members have chosen these companies as less obvious sources for tomorrow's great buys, let's see why they might merit your attention.

In the sight of greatness?
It's possible that Internap Network Services turned a corner last quarter as it squeezed out a very small operating profit and just missed on turning out net ones. Data centers and network services are certainly very much in demand. Verizon recently bought Terremark and CenturyLink (NYSE: CTL) is scooping up Savvis (Nasdaq: SVVS).

At an enterprise value to EBITDA of 11, Internap Network Services could be offering a discount to what the market thinks these services are worth. When Verizon made its purchase, it paid around 14 times EBITDA, but Savvis was only able to generate an offer of 11 times. Analysts are divided over whether management negotiated as hard as it should have.

On the one hand, a quarter of Savvis' revenues will come from network services for which analysts are forecasting less than 1% growth this year. Yet others say with the growth it was achieving it could easily have commanded more and as a result, Internap looks better now even though it's much smaller.

With 93% of the CAPS members rating Internap to outperform the broad market averages, they might agree that the network services provider is still a good deal. Let us know on the Internap Network Services CAPS page at what price you would consider its stock.

Going to the well again
Local search is loco. Google is making sure that its search capabilities expand the boundaries of how your results will interact with business. In striving to make its offerings more relevant to users, Google has been adding tools such as click-to-call to its results that enhance the experience. Now it's partnering with ReachLocal to further its AdWords platform.

The explosion of local deal websites has the makings of a bubble. That mania burst a bit in January for another local search player, Local.com, which claims 20 million users (but just $84 million in revenues). As Yahoo! (Nasdaq: YHOO) migrated its search to Microsoft's Bing -- Local.com's results are integrated with Yahoo! -- it claimed Bing ads were generating low revenues per click.

While this might portend future disappointments for Local.com, Bing is actually hooking up with Twitter and Facebook to integrate the services into its search results, and considering Facebook wants to get in on the deals-of-the-day act, Local.com could become a beneficiary of all the symbiosis.

CAPS member ravens9111 thinks last quarter's hiccup is behind it for good.

I think this stock has hit a bottom. Although the most recent earnings report was not overly impressive, management anticipates 50% sequential growth over the next two quarters. The most recent report was mostly affected by integrating Bing and Yahoo. Now that is resolved, this one should be primed to make a move back up to the $7 range. Not only should the price appreciate, but this company could also be a takeover target.

You can follow along by adding Local.com to the Fool's free portfolio tracker and see whether the market still kicks it to the curb.

A sticky wicket
After the drubbing Smith Micro Software took in February, it's hard to see what's so great about its prospects. As a key customer ratcheted down expected purchases, investors dialed back expectations -- and the value of the stock!

Mobile communications remains one of the true growth sectors. Whether handsets or tablets, the need to hook up mobile devices to the Internet via wireless carriers is still going strong. Perhaps just not as fast as previously thought. With all the talk from Sprint (NYSE: S), Verizon, and AT&T about who has the fastest 4G networks (and it just so happens Sprint and Verizon are substantial Smith customers), it's understandable if investors thought the build-out was going to be just as fast.

Smith Micro still sells at the depressed levels it hit after its earnings announcement, but you can see whether it can return to form by adding it to your watchlist.

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.

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Stocks Mentioned

Local Corporation Stock Quote
Local Corporation
LOCMQ
Smith Micro Software, Inc. Stock Quote
Smith Micro Software, Inc.
SMSI
$2.68 (3.88%) $0.10
Internap Corporation Stock Quote
Internap Corporation
INAP
Sprint Corporation Stock Quote
Sprint Corporation
S
Lumen Technologies Stock Quote
Lumen Technologies
LUMN
$11.27 (2.92%) $0.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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