Stocks on the Road to Greatness

For every stock out there screaming "Buy me!" there's another simply giving us a nudge and a wink. While all the attention might be focused on their five-star peers, four-star stocks be found by sifting through Motley Fool CAPS and looking for four-star stocks giving us the signal that they're approaching greatness. 

These opportunities -- including familiar names as well as 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 a pair of stocks on their way to fame and glory.

Source: Motley Fool CAPS. Cardero has no revenues or earnings. Zalicus has negative earnings.

Over 180,000 CAPS members have chosen these two companies as less-obvious sources for tomorrow's great buys -- let's see why they might merit your attention.

In sight of greatness
Primarily used for paint, titanium dioxide -- the whitest pigment there is -- also has uses in plastics, paper, ink, pharmaceuticals, and textiles. As the middle class of emerging economies like China and India expand, greater production of automotives and home appliances leads to higher demand (and higher prices) for the pigment. Add in supply disruption at Japanese producer Sakai Chemical from last year's earthquake and tsunami, and no new capacity coming online anytime soon, and you've got the makings of a huge supply imbalance.

Among the TiO2 producers, only DuPont (NYSE: DD) is slated to expand its capacity by 350,000 tonnes per year by the end of 2014. And Cardero Resources is sitting pretty: It recently received positive resource estimates for its Titac and Longnose projects in Minnesota, projects that BHP Billiton (NYSE: BHP) previously identified as the "largest known ilmenite resource in North America." Ilmenite is another key titanium-iron oxide mineral.

The Fool's resources guru, Christopher Barker, also calls Cardero's Carbon Creek preliminary economic assessment "phenomenal." It looks likely to be an economically robust metallurgical coal deposit that could bring significant revenues when developed.

But that's the rub: Cardero is an exploration stage company right now with no revenues yet. So obviously there's a lot more risk associated with an investment here. But CAPS member gamblingkev believes the Carbon Creek project alone could make Cardero a buyout prospect.

Cardero has a major find of metallurgic coal in British Columbia and there is a definite shortage of that type of coal. Could be a buyout candidate, as we've already seen some of that going on in the coal sector.

Put Cardero Resources on your Watchlist, and let us know in the comments section below if you think this one-two punch of opportunity might pay off soon.

An exercise in pain avoidance
Where Cardero has no revenues, Zalicus does enjoy a cash stream in the form of royalties paid by Covidien for its pain-management therapy Exalgo. Yet there's a lot of pressure on the biotech to develop a backup plan and do so in a hurry since the healthcare services supplier settled a patent dispute with Watson Pharmaceuticals (NYSE: WPI) over a generic version of the drug.

Zalicus does an interesting pipeline of promise with Synavive -- a immuno-inflammatory disorder treatment -- being its most advanced candidate. There are other drugs further down the line, and a recently announced partnership with Hydra Biosciences adds to the list of candidates, but this also serves as a drain on Zalicus' limited resources.

Although Hydra will be performing preclinical development activities to advance Zalicus' preclinical ion-channel product candidates toward development, the biotech will be paying Hydra upfront for its work and will fund the R&D efforts. At a time when Zalicus expects to see its Exalgo royalty stream cut in half after Watson starts ramping up production of its generic version, this could see the biotech having to dilute current shareholders in fundraising efforts.

Problematic, yes, but there is a lot of potential reward down the road. The longer term outlook is still positive, which could be why there's unanimity among the dozen Wall Street analysts covering Zalicus that it will outperform the market indexes. With only one of the 34 CAPS All-Stars rating the biotech not concurring with that opinion, it suggests we may see positive developments sooner rather than later.

Tell us in the comments section below or on the Zalicus CAPS page whether it will surprise to the upside, and then add it to the Fool's free portfolio tracker to be notified of developments as soon as they occur.

A great opportunity for you
Investor sentiment suggests these four-star investments still seem to be on their way to five-star greatness, but if you're looking for just one energy stock to play in 2012, click here to read The Motley Fool's free report, "The Only Energy Stock You'll Ever Need." But do it today, because, like low energy prices, it won't be around for long.