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There always will be companies that are obviously great investments -- in hindsight.
Looking in the rearview mirror, we can see we should have bought Microsoft (MSFT, news, msgs) or Wal-Mart (WMT, news, msgs) at their initial public offerings. We'd have realized tens of thousands of percent gains over the years. (Microsoft owns and publishes MSN Money.)
Yet for every stock out there screaming, "Buy me!," others 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?
Over on our CAPS investor-intelligence site, 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 are just shy of achieving stardom. In the long shadow of stocks that garner the coveted five-star rating are the top-tier companies approaching greatness.
The full "secret sauce" of the way ratings are calculated may be proprietary, but three factors influence a stock's star rating:
- Whether it is rated "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. Because they are correct more consistently than their peers, their opinions weigh more heavily.
And while the attention is focused on the five-star stocks, good four-star investments slip under the radar. A recent sift through the CAPS database in search of worthy companies approaching greatness uncovered five names:
| Company | Industry | Forward P/E |
|---|---|---|
Oil-field services | 16.9 | |
Network and communication gear | 22.2 | |
Gold | 17.3 | |
Scientific and technical instruments | 33.0 | |
Internet software and services | -111.3 |
Some of the names might surprise you. After all, anyone who has surfed the Internet can thank Cisco Systems (CSCO, news, msgs) for providing the backbone infrastructure that made it possible.
Sometimes the most familiar names are among the best investment opportunities -- maybe we've forgotten the potential they still hold. Just as meaningful, investors in 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 five companies merit your attention.
Long-term opportunities can earn you the greatest profits. While Cisco gets the headlines, InterNAP Network Services (INAP, news, msgs) works at a much lower profile, but its flow-control technologies for the Internet offer exciting potential. With broadband growth predicted to continue its penetration internationally, particularly in Asia, turnaround company InterNAP stands to benefit profoundly.
More from MSN Money and The Motley Fool
"InterNAP has invested in the technology to allow companies to communicate faster in the new, flatter world," the All-Star wrote. "More importantly, it provides the after-sale support to keep things running smoothly (and profits coming in). Just turning profitable, with solid cash flows and EBITDA expected (to rise) to around 37 million, InterNAP is trading very cheaply relative to its growth rate."
CAPS player "tverkerk5212" anticipates that InterNAP is poised to reap advantages from acquisitions. "With the acquisition of Vitalstream (including Eonstreams), it is in position to outpace competitors like Akamai Technologies (AKAM, news, msgs) and Equinix (EQIX, news, msgs), especially now (that) video online is taking off with the recently announced NBC/News Corp. deal. Target within one year: $45."
That's the word on InterNAP, but what are your thoughts? Are these four-star stocks still investment-grade material? Share your views on CAPS. You might even influence how stocks are rated. Your opinion counts.
This article was reported and written by Rich Duprey for The Motley Fool. At the time of publication, he owned shares of Wal-Mart but none of the other companies mentioned.
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