There will always be companies that are obviously great investments -- in hindsight. Through the rearview mirror, we know we should have bought Starbucks at its IPO and earned hundredfold returns over the years.
Yet for every stock out there screaming "buy me," there are others that simply give us a nudge in the ribs and a knowing nod. They may be tomorrow's obviously great investments, but how do we tell them from the thousands of pretenders?
The stars' walk of fame
Over on the investor-intelligence site Motley Fool CAPS, we know these opportunities as four-star stocks, companies that rank higher than most of the other 5,000 stocks in the CAPS universe, but just shy of achieving stardom. In the long shadows of stocks that garner the coveted five-star rating are top-tier companies approaching greatness.
While the full "secret sauce" of how the ratings are calculated is kept proprietary, there are three factors that influence a stock's star rating:
- The stock's rating -- "outperform" or "underperform."
- The length of time it is expected to perform -- a few months or a few years.
- The ratings of the investors who make the picks.
Every player is rated just as every stock is rated. The best and brightest of these players are considered All-Stars, and since they are correct more consistently than their peers, their opinions weigh more heavily in favor of (or against!) a stock.
Searching out of the spotlight
So while all the attention might be focused on the five-star stocks, we can sift through CAPS to find four-star companies approaching greatness:
- Suntech Power (NYSE:STP)
- Harvest Energy Trust (NYSE:HTE)
- Duke Energy (NYSE:DUK)
- Diana Shipping (NYSE:DSX)
- Celgene (NASDAQ:CELG)
Some of these names might surprise you. Power-company operator Duke Energy, for example, isn't exactly a hidden corporate name, particularly if you live in the Midwest or the Carolinas. Yet sometimes the most familiar names can be some of the best investment opportunities, because we've forgotten about the potential they still hold. Just as meaningfully, the 75,000 investors on CAPS are giving these companies the nod as less obvious places to look for tomorrow's great buys. So let's delve into why these companies might merit your attention.
The future's so bright ...
Solar power is riding a resurgence of interest, particularly as alternative fuels such as ethanol have their efficacy questioned. Moreover, as the price of ethanol has risen, so have the costs of crops, food, feed, beef, and chicken, as each are intertwined with the use of corn. Solar power, such as that produced by the technology Suntech manufactures, doesn't cause price inflation in essential products like food.
Nearly 2,100 CAPS investors have weighed in on the Motley Fool Rule Breakers recommendation, and 96% view it as outperforming the market over time. CAPS All-Star jester112358, one of the 98% of the rating All-Stars who are bullish on SunTech, finds the government rebates and incentives offered on solar power to be an attractive benefit:
My only alternative energy pick. In this market the difficulty of supplying energy to rural customers may make this government subsidized solar power company viable.
CAPS investor Chicken114 views solar-power holdings as a long-term investment, particularly in this Chinese company, despite potential short-term fluctuations:
Admittedly, still speculative at this point. It is a Chinese company, with a winning hand at this point. They are daring and brave and are showing profits with substantial new orders and a lock on product cost. Solar [will] be one of the energy answers. Buy some shares if you will, but hold cash back for a further purchase if there is a price decline for no real reason. Remember ... this is a 3 year hold!
With some of the largest exposure to the U.S. market (along with SunPower (NASDAQ:SPWR) and Evergreen Solar (NASDAQ:ESLR)), Suntech stands to benefit from proposed legislation requiring utilities to produce more power from renewable sources.
A great opportunity for you
That's the current word on Suntech, but what are your thoughts? Are these four-star stocks still investment-grade material? Give your input on the totally free CAPS and help your fellow investors become more Foolish.
