3 stocks about to break loose

By The Motley Fool

Some companies are obviously great investments -- in hindsight.

Sure, we should have bought Starbucks (SBUX, news, msgs)at its initial public offering. Yet for every stock out there screaming "buy me," others simply give us a nudge and a nod. How can we tell tomorrow's great investments from the thousands of pretenders?

• Fantasy stock challenge: Join CAPS, rate stocks, win great prizes

Over on our CAPS investor-intelligence site, we know these opportunities as four-star stocks, companies that rank higher than most of the other 5,500 stocks in the CAPS universe but are just shy of achieving stardom. While their five-star peers get all of the attention, we can sift through CAPS to find the four-star companies that may be approaching greatness.

As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals. The ratings and comments from the CAPS community aren't always right, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants.

Here are three promising four-star stocks:

• Mylan Laboratories
• Encysive Pharmaceuticals
• Universal Display

Some of these names might surprise you. Generic-drug maker Mylan Laboratories (MYL, news, msgs), for example, has been providing low-cost alternatives to name-brand medicines for some time. But even familiar names can still offer some of the best opportunities. Perhaps we've just forgotten the potential they still hold. However, the 89,000 CAPS investors chose these companies as less-obvious sources for tomorrow's great buys, so let's see why they might merit your attention.

Most of us are familiar with light-emitting diodes, or LEDs, if for no other reason than that we might have worn a way-cool LED watch back in the 1970s. Well, LEDs have come a long way since then; these days, they represent the next generation of lighting technology that has the likes of General Electric (GE, news, msgs) scrambling to scoop up LED manufacturers.

Yet imagine an LED technology that goes a step further. Imagine superthin TV screens that you can roll up and take with you. That's just one of the promises of organic LED technology, or OLEDs, and Universal Display (PANL, news, msgs) could be one of the leaders.

Yet before we get to that futuristic technology, we'll probably see OLEDs being used to make our current crop of televisions better, and for that, Universal has been signing up partners such as Sony (SNE, news, msgs).

• Video: OLED may be next big thing in mass-market video screens

Some 95% of the CAPS investors rating the stock see Universal as outperforming the market. CAPS player "07acuratis" thinks it is only a matter of time before OLED screens go mainstream. "(Universal Display's) OLED technology is the next generation of video displays, ultimately replacing the common LCD and plasma displays," the CAPS player wrote. "Once scientists master the (development) of this technology and achieve many of the potential efficiencies of this type of lighting, this will become mainstream. And once that happens, this stock is going way higher."

Another CAPS player, "blitztech," thinks Universal's patent portfolio will come into play as the rollout of OLED screens hits the market. When that happens, according to blitztech, Universal should outperform the market as well as its rivals:

"This company is finally selling licensing and is ramping up (its) connections to get manufacturing started in the right direction," blitztech wrote. "It has been (hemorrhaging) money for years, and is finally showing shining examples of what (its) 800 patents are capable of. This is one of the only players in the field that will actually get (its) . . . products on the market and with the intellectual property rights and agreements in place it is poised to perform."

You've heard the latest on Universal Display, but do you agree? Are these four-star stocks still investment-grade material?

On MSN CAPS, you can give your input, which can ultimately influence how the stocks are rated. Your opinion counts. Sign up today. It's completely free. Let us hear what you have to say about the great and almost great companies that interest you.

This article was reported and written by Rich Duprey for The Motley Fool. At the time of publication, he owned none of the stocks mentioned.