Stocks on the Road to Greatness

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 a 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've got a pair of stocks on their way to fame and glory.

Company

Market Cap

1-Yr. Rev. Growth

1-Yr. EPS Growth

1-Yr. Stock Return

Alcatel-Lucent (NYS: ALU)

$3.3 billion

(7%)

0%

(75%)

Polaris Industries (NYS: PII)

$5.1 billion

33%

55%

53%

Source: Motley Fool CAPS.


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

In the sight of greatness
If wireless carriers can't buy their growth, like AT&T's (NYS: T) failed effort to acquire T-Mobile last year, then they will seek other avenues for expanding their spectrum to meet their needs, and that's where Alcatel-Lucent profits.

I've noted previously that Cisco has said mobile-data traffic will increase 18-fold by 2016. Growth doubled for the fourth year in a row last year as smartphone usage tripled, and it will be responsible for an even larger percentage of data usage as time passes. Smartphones represent 82% of total handset traffic even though basic handsets still account for 88% of the devices on the market. The market opportunity is huge.

What opportunity? To help carriers meet their spectrum needs. Small-cell technology is the means for satisfying the demand for ever-greater amounts of traffic. The FCC won't be auctioning new spectrum for years yet, so the capacity crunch that's coming will make investors in equipment-makers like Alcatel and Ericsson handsome profits.

Both Sprint (NYS: S) and AT&T already have plans to start deploying the small-cell technology these companies produce, and as it's a leader in the field, I believe Alcatel will continue leading the way. Although my CAPScall on Alcatel hasn't paid off yet (nor my real-life investment in the company), I'm fairly confident that this is still very early innings and, as CAPS member Reyniel says, the boom will materialize sooner rather than later:

Cellular providers will need to move toward 4g soon. The next iteration of the iPhone will force that move. Alcatel-Lucent's lightRadio offers a cost slashing, new age method of squeezing the most of the spectrum. Small cell is the future, and ALU is leading the way.

Add Alcatel-Lucent to your watchlist, and tell me in the comments section below or on the Alcatel-Lucent CAPS page if you think they're about to dial up new growth.

Twinkle, twinkle little star
Following the pole star to mark one's position has been used by travelers for ages. Investors might want to adopt a similar strategy by following the market's pole star, ATV maker Polaris Industries. Few companies have the record it does of beating analyst forecasts, and last month, it notched its 20th consecutive positive earnings surprise. At a time when Harley-Davidson (NYS: HOG) is getting eclipsed by slowing sales and Arctic Cat left investors cold with a gloomy outlook, Polaris continues to shine brightly.

ATVs, the main driver of Polaris' growth, were strong again, and even internationally, despite the financial climate in Europe, it saw sales rise 20%. Partially explaining the weak results at Arctic Cat, Polaris admits that the warmer-than-usual winter left inventories higher than normal on snowmobiles, but its growing presence in motorcycles -- it purchased the iconic Indian brand last year -- continues to exceed expectations. It subsequently increased full-year revenue and earnings guidance.

Not only does CAPS member dreamjob like the strong lineup of brands Polaris offers, but he's also enamored of the solid dividend it pays that currently yields 1.9%:

This looks like a well managed company selling at or slightly below intrinsic value. They have manageable debt, and pay a dividend as well. Positive and stable free cash flows and owner earnings as well. Very solid brand name within the family of products they provide.

Add Polaris to the Fool's free portfolio tracker, and let us know on the Polaris CAPS page or in the comments below if you'll follow this company to greater profits.

A great opportunity for you
Investor sentiment suggests these four-star investments are on their way to five-star greatness, but while PCs and related companies might be hurting, the smartphone and tablet revolution is still gaining legs. You can read The Motley Fool's report on "The Next Trillion Dollar Revolution" to find out more. This report will be available only for a limited period. Get it before it's gone!

At the time this article was published Fool contributor Rich Duprey owns shares of Cisco Systems and Alcatel-Lucent, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Cisco Systems. Motley Fool newsletter services have recommended buying shares of Polaris Industries. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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