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 the attention might be focused on their five-star peers, we can sift through Motley Fool CAPS to find four-star stocks giving us the "high sign" 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've got this handful of stocks on their way to fame.

  • DragonWave (NAS: DRWI)
  • Level 3 Communications (NYS: LVLT)
  • MIPS Technologies (NAS: MIPS)

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 market hasn't been kind to microwave backhaul provider DragonWave, cutting its stock by more than two-thirds from the 52-week high it hit back in April as the opportunity for its biggest customer, Clearwire, faded. Although it was branching away from the WiMax technology specialist, Clearwire still accounted for 60% of its total revenues (down from 80% the year before), so when Sprint (NYS: S) chose to virtually abandon WiMax for LTE technology, it was bound to impact DragonWave.

It's hard for me to get excited by DragonWave's prospects right now. While it continues to search for new customers, it's pursuing a growth by acquisition strategy -- which itself is fraught with risk -- and has been buying back stock; all the while revenues are falling and it doesn't see itself turning profitable until 2013.

The bright spot, though, is the chance for its deal with FiberTower, the largest wholesale backhaul provider in the U.S. Analysts anticipate FiberTower spending as much as three-quarters of its future backhaul spending on microwave technology, rather than fiber.

But 96% of the CAPS members rating DragonWave are confident in the turnaround prospects and have marked it to beat Wall Street going forward. Share your thoughts on the DragonWave CAPS page if you think the microwave backhaul specialist won't get burned, then put it on your watchlist to keep track of its progress.

Content yourself with this one
Not everyone thinks the merger of Level 3 Communications and Global Crossing will result in a company that's able to turn the content delivery provider into a profitable venture. Certainly neither has proven itself capable of being profitable as a separate entity, so why should synergies materialize by bringing them together? Sears Holding should be enough of an example of joining two losing operations, as Kmart and Sears have never melded properly.

Yet the proliferation of mobile computing through smartphones and tablets points to the need to provide as big a pipeline as possible, and that underscores the growth catalyst present for Level 3. Content may be king, but without the bandwidth to deliver that content, you've got nothing. The risk, though, is the pricing pressure for Level 3 from fierce competitors like Akamai (NAS: AKAM) and Limelight Networks.

Count CAPS member Raztick among the doubters, believing as he does that it will continue to struggle to right itself for some time to come, but Notnowhomer says Level 3 has the wherewithal to exceed expectations: "Despite themselves the asset is gold and has a lot of capacity to increase its bandwidth it needed. I also think company could be purchased in the near future for this capacity."

Tell us in the comments section below or on the Level 3 Communications CAPS page whether it can cross the chasm to profitability, and add it to your watchlist to see its progress.

Activists acting up
I'm sure it's nothing management at MIPS Technologies has done to warrant the greater CAPS support for the company, considering it has produced a string of disappointments that featured the CEO overpromising and underdelivering. I've noted previously that I was done with management's inability to deal straight with shareholders, and apparently I'm not the only one.

The chip designer received a letter from one of its largest shareholders, Starboard, that revealed a significant lack of satisfaction with the current board of directors and offered a slate of candidates to be nominated. Starboard says management and the directors have had their hands on the tiller of value destruction since its IPO and it was time to steer a new course.

Now it's true the industry has been reeling in the current economy with both Broadcom (NAS: BRCM) and Entropic Communications (NAS: ENTR) putting up disappointing numbers alongside MIPS, but Starboard says MIPS has focused on the wrong things and should stop buying companies and instead buy back its cheap stock.

If a big shareholder is willing to go on record wanting to shake things up, it's not surprising CAPS members are willing to tag along with a company that has a lot of promise. TheBlindCat points to international opportunities as one avenue to pursue: "This stock is so beaten down that, despite being a huge fan of ARM, willing to take a flyer. Cash on hand looks good, expansion in the Chinese market has been touted by some and IP has value in the current litigious environment."

Join Starboard by giving us your thoughts on the MIPS Technologies CAPS page on what it should do to change course, then add the stock to the Fool's free portfolio tracker to see if it follows through.

A great opportunity for you
Investor sentiment suggests 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 Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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