5 Stocks Approaching Greatness

Some companies are obviously great investments -- in hindsight. Sure, we should have bought Starbucks at its IPO and earned huge returns over the years. Yet for every stock out there screaming "buy me," others simply give us a nudge and a nod. How can we tell tomorrow's obviously great investments from the thousands of pretenders?

The stars' walk of fame
On Motley Fool CAPS, you can find these opportunities among our four-star stocks. In CAPS' proprietary ratings system, they rank higher than most of the other 5,600 stocks in the CAPS universe, but they're just shy of superstardom. While their five-star peers get all of the attention, we can sift through CAPS to find the four-star companies approaching greatness:

• Humana (NYSE: HUM)
• Luminex (Nasdaq: LMNX)
• Visa (NYSE: V)
• China Digital TV Holding (NYSE: STV)
• Microtune (Nasdaq: TUNE)

Some of these names might surprise you. Visa gave a dazzling quarterly earnings report, similar to the one MasterCard (NYSE: MA) handed out a day later. That's almost great? Perhaps we've just forgotten the potential these companies still hold. Let's see why these companies might merit your attention.

Tune in to this
According to the market researchers at InStat, shipments of digital-cable set-top-box units jumped to more than 41 million units last year, to handily beat the 29.7 million units shipped in 2006. Further, worldwide cable set-top-box revenue was more than $6 billion in 2007, up 25% from in 2006.

With access to digital programming booming worldwide, particularly in China, providing the technology to control access to it is proving to be a booming business for China Digital TV. It makes the smart cards that go into the set-top boxes, as well as the software that the industry needs to distribute digital programming.  

Revenue for the Chinese conditional-access company hit $55.5 million last year, up 82% from the year before, and has grown at a compounded rate in excess of 148% over the past three years. Yet shares plummeted after a brief, meteoric rise following the company's IPO last year. After reaching a peak of $55 a share, shares now trade below $20 a stub. However, with the summer Olympics quickly approaching, demand for access to view programming will be increasing.

CAPS investor MGen thinks China Digital is a mispriced stock right now because of a misconception that it is a "cable company" when, in fact, it has nothing to do with the programming itself:

China Digital TV has consistently beaten earnings expectations ... since the IPO last year, yet ... [it] has seen an overall declining stock price ... through a combination of the overall declining stock market ... plus a popular misconception that STV is a "cable company stock" which should carry a low [price-to-earnings ratio]. China Digital TV's primary product is a high-tech conditional access smartcard ... which recently has even been upgraded by the use of Intel (Nasdaq: INTC) card processors. ... [A] market China Digital is expanding into is a PC card which makes PC's capable of receiving and displaying premium HDTV.... China Digital is a Tech sector company, not a Cable TV Station provider. ... [It] is well-positioned to be a high growth company for at least the next several years.

A great opportunity for you
You've heard directly from CAPS on China Digital TV, but do you agree? Is this four-star stock still investment-grade material? On Motley Fool CAPS, you can give your input and influence how it's rated. Whether you call an outperform or an underperform, whether you're looking at the near term or well into the future, your opinion counts.

Sign up today for Motley Fool CAPS -- it's completely free. Let's us hear what you have to say about the great -- and almost great -- companies that interest you.