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 analyst coverage, 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. 

Company

CAPS Rating (out of 5)

Wall St. Picks

5-Year EPS Growth

Frontier Communications (NYSE: FTR  )

***

5

2%

iShares Silver Trust (NYSE: SLV  )

***

1

NA

North American Palladium (NYSE: PAL  )

*****

2

NA

Source: Yahoo! Finance.

Remember, without analyst support, you'll have to do your own scouting to see whether these stocks deserve a spot on your portfolio's roster. Don't just buy or sell them based solely on their appearance here. 

A utility player
Is this one of those plays Joel Greenblatt urged investors to keep an eye out for in his book, You Can Be a Stock Market Genius? Frontier Communications finally got FCC approval to acquire Verizon's (NYSE: VZ  ) rural assets, despite opposition from various quarters. However, its stock is down, despite the company's new status as the largest, pure rural telecom in the country. Analysts say that with the deal comes a distribution of one share of Frontier stock for every 4.2 shares of Verizon stock shareholders own, giving Verizon shareholders a 68% stake in Frontier. But institutional shareholders are not likely to want to hold onto the stock, and shares may be sold down.

In his book, Greenblatt discusses this don't-want-itis as a potential opportunity to buy in. There's certainly a lot more due diligence necessary beyond a simple selling of shares, but it's one of the places to begin looking for profitable opportunities.

Dividend yields are something to investigate. Frontier yields 13.5%, while rural carriers Windstream and CenturyTel (NYSE: CTL  ) yield 9% and 8.4%, respectively. Yet Frontier (and Windstream) has paid out significantly more in dividends than it's earned over the past year, suggesting it might have to cut its dividend.

Despite 91% of CAPS members rating Frontier believing it will outperform the market, many like RAY333 see its landline business going the way of pagers:

at best, it could hold keep earnings up for a few years. Landline business is losing gound to cable. spin-off from Verizon.

All fun and games
If you look at today's soaring stock market, you'd surmise that investors couldn't give two hoots about Moody's downgrading Portugal sovereign debt. Despite the financial crisis looming larger there, the market has decided to ignore the implications that the situation could continue deteriorating over the next two to three years.

Precious-metals traders took note, however, and gold jumped higher again, followed by silver. The sovereign debt crisis isn't going away, and investors holding ETFs trading on gold and silver prices like the SPDR Gold Trust (NYSE: GLD  ) or the iShares Silver Trust should benefit.

CAPS member tfcinvest expects the financial troubles of global economies to create additional upward momentum under precious metals:

Inflation would be driven by massive money printing by the central banks of the world. From this perspective Gold is more attractive than Silver because we might come to a point where governments would confiscate gold.

Commodities boom would be driven by increasing consumption and prosperity in emerging economies. From this perspective Silver is more attractive than Gold because it would have an increasing industrial demand.

Kicking it higher
How that situation plays out could end up benefiting North American Palladium, too. While its stock has been in a tailspin as palladium prices have collapsed, its jump into gold with the purchase of assets from Agnico-Eagle Mines (NYSE: AEM  ) looks particularly well-timed:

Good growth potential at a good price. It'll probably be quite volatile, and the short term outlook for China is risky, but long term this should be a big winner.

CAPS All-Star bg11235 says NAP is a speculative play to be sure, but if prices on precious metals rise, it could be sitting pretty:

Pullback limit entry. High operating leverage after sinking costs for restarting operations back in December. Speculative though. Metal prices need to remain high for the move to make sense.

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.

Moody's is a Motley Fool Inside Value pick and a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a stock repair position on Moody's. Try any of our Foolish newsletter services today, free for 30 days.

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 Motley Fool has a disclosure policy.


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