Wall Street's Best Unknown Stocks

When asked for the secret of his success, baseball player Wee Willie Keeler replied, "Hit 'em where they ain't." What worked for Willie at the plate applies equally well in investing. 

Seeking stocks that others ignore, shun, or simply forget gives individual investors like you an edge over the professionals. When Wall Street turns a blind eye, you have a chance to get in before these stocks get discovered -- or rediscovered -- and start taking off. 

Below, we'll check out companies with only a handful of analysts covering them, then pair our list with the opinions of the Motley Fool CAPS community. A stock that garners CAPS' top ratings, but hasn't yet caught analysts' attention, could be your next home run investment. 

Stock

CAPS Rating
(out of 5)

Wall St. Picks

Expected 5-Year EPS Growth

China MediaExpress Holdings (Nasdaq: CCME  )

****

0

N/A

KMG Chemicals (Nasdaq: KMGB  )

*****

2

20%

MELA Sciences (Nasdaq: MELA  )

***

4

40%

Source: Yahoo! Finance and CAPS. N/A = not available.

Remember, with little or no analyst support for these stocks, you'll have to do your own scouting to see whether they deserve a spot on your portfolio's roster. Don't buy or sell them based solely on their appearance here. 

A utility player
China MediaExpress Holdings operates China's largest television ad network on intercity buses. The company just reported that its strategy to separate advertising rate charges for different media is paying big dividends. Preliminary first-quarter results show profits of as much as $18.5 million, on revenue that could come in as high as $45 million. That's a 40% sequential top-line increase and a better-than-29% jump in bottom-line numbers, even though the fourth quarter is typically the company's strongest.

When similarly situated Focus Media (Nasdaq: FMCN  ) reports earnings later this month, we'll see whether the boom is an industrywide phenomenon. Back in March, Focus reported revenue well ahead of even its own expectations, and forecast solid numbers for the first quarter, too.  

Surprisingly, VisionChina Media (Nasdaq: VISN  ) hasn't enjoyed the same good fortune. It reported yesterday that it suffered a 14% decline in revenues, largely because of rate hikes and an acquisition binge. Apparently, television isn't benefiting from the same growth opportunities that other outdoor and transportation-based media do.

A private placement that China MediaExpress completed earlier this year has boosted CAPS member egarl's confidence: "Fast growing with cash to acquire more assets. 2010 will be a rapid growth year for them."

Chemically bonding
Specialty chemical maker KMG Chemicals has benefited from rising strength in the economy, as evidenced by the ISM manufacturing index's healthy recovery to the high side of 60%. Shares have tripled over the past year, beating Huntsman's 100% gain and the 60% jump by Dow Chemical.

A rights offering by KMG's chairman for 1 million shares at $17.50 hasn't had much effect on the price, but a bet on the tech sector and a broad diversity of industries it services makes CAPS member JPNot think the chemical specialist is a keeper:

Another wonderful chemical company that has exposure to a bunch of industries. Its chemicals are used for: 1) Cleaning and etching silicon wafers in the production of semiconductors; 2) Treating electric and telephone utility poles, protecting them from mold, mildew, fungus, and insects; 3) Wood preservatives for railroad crossties and utility poles; and 4) Animal health pesticides to protect cattle, swine, and poultry from flies and other pests. And with a ROE of 23%, 5 yr growth of 30%, a Price to Operating CF of only 6.68%, and Current Ratio over 2%, KMGB looks to be a long term keeper.

A bit "mela-dramatic"
MELA Sciences' handheld device for discovering melanomas is a significant departure from the methods used by General Electric or Siemens PET/CT scanners. That might be part of the reason why the FDA requested additional information on the MelaFind device before granting premarket approval. MELA's stock is off 32% year to date, reflecting the concerns best expressed by new CAPS member dynam000:

With the potential for such widespread use I would venture to guess the FDA is scrutinizing the statistical analysis and data set quite closely. The potential miss for the FDA is that they approve a imaging device that ultimately has a high rate of false positives which would increase the number of biopsies, adverse events, and costs to the healthcare system. Ramifications for false negatives are obvious.

Swing for the fences
When seeking investments where no one else is looking, Motley Fool CAPS is the best place to start your own research. 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 tell us whether these hidden stock opportunities will help us go one up on Wall Street.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Fool owns shares of MELA Sciences. The Motley Fool has a disclosure policy.


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