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 all 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.

  • Caterpillar (NYS: CAT)
  • Claude Resources (NYS: CGR)
  • Xinyuan Real Estate (NYS: XIN)

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?

With machinery sales slowing and a manufacturing base headed toward contraction, it's understandable the CEO of Caterpillar would lash out at Congress for the partisanship that's frozen progress on free trade deals, while international competitors led by China steam ahead.

The world's largest maker of mining and earth-moving equipment saw sales growth fall sharply in North America, nearly getting cut in half to 27% in July from the 50% jump experienced in June. Of course, Cat is lapping some pretty large gains it achieved in the year ago period that were making up for the dearth of sales realized in 2009.

Like Joy Global (NAS: JOYG) and Manitowoc (NYS: MTW) Caterpillar also posted sequential as well as year-over-year gains. However, for Caterpillar, the rate of expansion slowed down each month of the past quarter.

With far-flung operations, Caterpillar relies upon the government to open up trade agreements with other countries as well as keep infrastructure projects going. A political stalemate does no one any good, particularly Caterpillar. Even before his speech last night, President Obama signed a memorandum instructing federal agencies to identify major infrastructure projects that can get going within 18 months.

CAPS member latinoeconomist believes such initiatives here and around the globe will ultimately benefit Cat: "New Infrastructure Bank in the US, and similar initiatives in other countries; low P/E ratio; high dividend. I think I will buy some actual shares, as well!"

Let us know on the Caterpillar CAPS page whether you think this company can still move mountains.

The gold standard
The country's weakened economic condition means the prospects for gold look better. After hitting new highs, the yellow metal retreated under $1,900 an ounce, but a disastrous jobs report -- the first time in decades the private sector hasn't created any net new jobs -- creates a new impetus to test those highs.

Exploration and mining outfit Claude Resources is a lesser known junior miner, but one that is quickly gaining a following. Its flagship Seabee project provides free cash flow allowing it to engage in more exploration opportunities -- such as at its Amisk gold project, based at a Manitoba mine with 921,000 indicated gold-equivalent ounces. Where once it had just a 35% interest in the project, it wants to take full ownership of the mine, as well as its 100%-owned Tartan Lake Gold project in Flin Flon, Manitoba.

Because of the rising price of gold, many investors still see it as a bubble. Others, like the Fool's bullion guru Christopher Barker, says the retreat we witnessed in prices was a buying opportunity as the metal readies for the next leg up. The SPDR Gold Trust (NYS: GLD) has already bounced out 10% from the lows it hit just a few weeks ago.

CAPS member Darp thinks Claude will continue to be successful in its exploration endeavors.

On stocks like this you can play in and out, buy the dips sell the drilling results good news rips, it is quite predicable. Whereas I do that on real positions for CAPS do not have the time. This new high grade find should lead to other exciting drill results, so [Claude] should do quite well in coming year JMHO.

Follow all of its developments by adding its stock to the Fool's free portfolio tracker.

Housing's heights
Considering the effort the Chinese government has put into chopping the knees off the real estate market, Xinyuan Real Estate's second-quarter earnings are really quite remarkable -- even beyond the fact they crushed consensus per-share earnings forecasts by nearly 100%, beat revenue estimates, and raised guidance. With China Real Estate Information (NAS: CRIC) reporting a 59% slide in profits from last year, Xinyuan has held up remarkably well.

Yet caution is in order because it's not easy to continue putting up big numbers when your government is battling against you. That Xinyuan has done so suggests it has fundamental strengths missing at other competitors.

If gold is considered a bubble, so is Chinese real estate, but CAPS member EinstiensBastard thinks such fears are overdone.

The other concern weighing on XIN is the perception that Chinese real estate is in a bubble. One notable proponent of this is Jim Chanos, who expects the China bubble bursting to be 1,000 times the Dubai bubble. While we are concerned about possible fraud and excess leverage and debt, we have reached the conclusion that some fears are overblown.

Let us know whether you think there's a bubble getting ready to burst by visiting the Xinyuan Real Estate CAPS page.

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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