3 Stocks Approaching Greatness

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For every stock out there screaming "buy me," others simply give us a nudge and a nod. While their five-star peers get all the attention, we can sift through Motley Fool CAPS to find four-star stocks giving us the "high sign" that they're approaching greatness. 

These opportunities -- including familiar names and 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 have this handful of stocks on their way to fame.

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

In the sight of greatness?
The U.S. economy is faltering and is perched on the precipice of decline once again. The Institute for Supply Management's manufacturing plunged in July to 50.9% from 55.3% in June. While that still indicates expansion (anything above 50 is an expanding economy), it's well off the 61.4% mark it hit back in Feburary. Worse, the new-orders index fell to 49.2%, indicating contraction, and marks the first time since February 2009 that it has shrunk.

Equally ominous, China's purchasing-managers index was showing a contracting economy, falling to 49.3 in July, down from 50.1, its first contraction since last year and the lowest since March 2009.

Although the debt-ceiling debate in Washington captured a lot of the headlines, there are few who truly believe it will do anything to help the economy. Oil prices, which initially gained on reports of the debt deal, have retreated again as it's apparent the economy here and abroad can't sustain high oil prices, and traders expect Nymex crude to drop to around $90 a barrel.

Conversely, gold dropped on news of an agreement, undoubtedly as it took some immediate risk off the table. Some investors buy gold on reports of turmoil, but this agreement doesn't mean it's still not a safe-haven metal, and with its price still sitting over $1,620 an ounce, traders haven't abandoned the yellow metal. Silver's slightly different because of its industrial uses, but it's now back above $40 an ounce.

With Paramount Gold & Silver reporting new higher assay results from its wholly owned San Miguel mine in Mexico, the trends are looking in its favor, particularly because they weren't in the Don Ese vein structure associated with the dispute it has with Coeur D'Alene Mines (NYS: CDE) of whether it encroached on its property.

CAPS members are fairly bullish on Paramount's prospects, with 94% of those who've rated the gold and silver miner thinking it will outperform the broad market indexes. You can follow its progress and the legal tiff with Coeur D'Alene by adding the stock to the Fool's free portfolio tracker.

Oil drillers in the Bakken region of North Dakota might not welcome the reprieve from high prices, particularly if, like Kodiak Oil & Gas, they report earnings this week. Kodiak previously lowered production estimates for the year because of a rough winter and spring flooding, and MDU Resources (NYS: MDU) , which just reported earnings yesterday, seems to confirm that sentiment. Although its Bakken production was up 10% over last year, it still reported lower earnings. But like Kodiak, it's ramping up drilling in the region with two more rigs.

Kodiak now has four rigs operating there, while EOG Resources, the largest oil producer in the state, has 10 rigs. EOG is also reporting earnings this week, and we'll begin to see how well the region plays out.

Because the Bakken is such a rich vein, CAPS member wy11 says Kodiak will overcome whatever obstacles are in its path: "This company is invested in the Bakken Oil shale play in No. Dakota. There's more oil and gas up there [than] one can imagine."

Let us know on the Kodiak Oil & Gas CAPS page whether you think the economy's possible contraction will affect its drilling program.

A win-win situation?
Now that rural telecom provider Windstream (NYS: WIN) has offered to buy broadband-services provider PAETEC, investors need to decide whether it's a good deal for the company or whether it will all fall apart.

On the surface, Windstream is a pretty shaky company that, despite a hefty dividend yielding 8.2%, also sports a payout ratio of 182%. In comparison, rival CenturyLink (NYS: CTL) has a payout ratio of just 97%, though Frontier Communications hits nosebleed highs of 332%. But Windstream's depreciation and amortization exceed capital expenditures, so on a free cash flow basis, its payout ratio is just 78%, so it becomes a better deal.

Windstream made its buyout overture as an all-stock deal, which, for an $891 million offer, is a pretty large chunk of stock. Windstream shareholders can't be all that excited, though the 27% premium it was willing to give PAETEC's owners might make them smile.

All but one of the three dozen or so CAPS All-Stars rating the broadband provider thought it could beat the market on its own, so let us know in the comments section below whether you think it was wise for PAETEC to step into the stream and be acquired.

A great opportunity for you
Investor sentiment suggests that these four-star investments still seem to be on their way to five-star greatness, but 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.

At the time this article was published Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his portfolio. The Motley Fool has a disclosure policy.

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