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
In the first 20 months we tracked Motley Fool CAPS, the data showed that stocks achieving five-star ratings outperformed the market by 12 percentage points, while newly minted five-star stocks represented the best opportunity to capture those returns. Let's sift through CAPS' proprietary ratings system and find the stocks most likely headed towards superstardom. Here are a handful of four-star firms approaching greatness.
- ADC Telecommunications (NYSE:ADCT)
- ModusLink Global Solutions (NASDAQ:MLNK)
- Pain Therapeutics (NASDAQ:PTIE)
- Reliant Energy (NYSE:RRI)
- Sierra Wireless (NASDAQ:SWIR)
Some of these names might surprise you. ADC Telecommunications, for example, has been providing networking equipment for years. Almost great? Even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. The 125,000-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.
Good medicine
Undoubtedly, last month's FDA demand that Pain Therapeutics and King Pharmaceuticals (NYSE:KG) work up further analysis on their Remoxy set back plans to get the abuse-resistant variety of oxycodone into circulation in the first quarter. But with no further clinical trials required, it may just be a matter of when, not if, Remoxy will get approved.
CAPS member SnoopyDancing thinks the joint venture might produce a blockbuster: "New joint venture with King pharma may bring an abuse-free oxycontin to market which would be a blockbuster for the legal pharma market."
Is Reliant reliable?
Sometimes, a company's greatness may hinge not on its future performance, but on its potential returns in the near term. That seems to be the case with Reliant Energy, which is in the midst of a "strategic review" -- code for selling itself or its assets to the highest bidder.
The energy provider recently completed a sale of the Northeastern electricity-marketing assets of its retail subsidiaries to oil and gas company Hess (NYSE:HES). After Hurricane Ike damaged some of its properties, and amid the roiled credit markets, Reliant was forced to raise $1 billion in new capital and cut its retail profit expectations nearly in half, to $350 million for the year.
Reliant found itself in further trouble when Merrill Lynch sued it for terminating a $300 million credit line, which Merrill claims triggered the default of an additional agreement. One analyst suspects Merrill may be trying to force the energy company's hand and possibly take control of its retail power business.
CAPS member bobclommer thought back in October that Reliant Energy had just been temporarily hurt by the hurricane damage, and that it would eventually turn itself around:
quality,regional utility provider, badly hit by Ike, recently downgraded, trading at a very low price, looks like a time to start a long term position.
A great opportunity for you
With these four-star investments on their way to five-star greatness, 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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