Wall Street's Best Hidden 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. 

Stock

CAPS Rating (out of 5)

Wall Street Picks

5-Year EPS Growth

PharmAthene (NYSE: PIP  )

*

1

NA

Precision Drilling (NYSE: PDS  )

*****

4

5%

SkyPeople Fruit Juice (Nasdaq: SPU  )

*****

1

30%

Source: Yahoo! Finance; NA = not available.

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. 

Hiding in plain sight
Investors in SIGA Technologies (Nasdaq: SIGA  ) were more than a little miffed when I wrote that PharmAthene had a good chance of winning its lawsuit against SIGA over marketing rights for its smallpox antiviral drug ST-246. It's natural they would be, because the contract awarded SIGA Technologies could be worth as much as $2.8 billion. If PharmAthene wins, a good portion of those revenues would no longer flow to SIGA Technologies.

The lawsuit started in 2006 after SIGA Technologies backed out of a deal to merge with PharmAthene after reporting positive results for its own research and development efforts. However, the merger agreement had stipulated that if the deal fell through, the two would still go ahead with a joint marketing arrangement. Apparently, SIGA Technologies realized just how lucrative its antiviral was and tried to cut PharmAthene out. SIGA Technologies tried to have the suit dismissed; the judge in the current proceedings -- who ruled against SIGA Technologies the first time -- is expected to rule on the motion by the end of the month. If the case proceeds as analysts expect, the trial is scheduled to begin in January.

A betting man might say that the odds are heavily in PharmAthene's favor not only in the motion to dismiss, but in the trial, too. A lot of the judge's original decision is something like, is an "agreement to agree" enforceable? It might be in SIGA Technologies' best interest to settle the matter, but settle or win, PharmAthene looks poised to come out ahead.

CAPS member Canyouspareadime is expecting positive outcomes, too, but says that until the matter is settled, PharmAthene is likely to be volatile.

...unless this company can continually receive government contracts, here and abroad, we might see another huge loss in this company's worth, as in [January] of this year. 

I will consider this a cyclical investment with a time period of one year, with the hopes that PIP might be able to gain enough clout to keep selling to our gov. and to those abroad.

All charged up
Do you need an example of the depressed state natural gas remains mired in? You don't have to look at gas driller Chesapeake Energy (NYSE: CHK  ) , whose shares are  down 17% year to date, or check natural gas prices, which are hovering around $3.50, or even look at inventory levels, which are well above the five-year average. Just look at how traditionally gas-centric Canadian drillers like Precision Drilling are now heavily invested in oil.

Precision Drilling typically focuses two-thirds to three-quarters of its drilling on natural gas, but in its latest quarter, 60% of its time was spent drilling for oil. It's why SandRidge Energy (NYSE: SD  ) bought Arena Resources earlier this year and EOG Resources (NYSE: EOG  ) sold off "non-core" gas assets.

The CAPS community is certainly behind Precision Drilling looking for the most profitable play. Almost 98% of the more than 1,400 members rating the company believe it will outperform the market, and if it does because of oil instead of gas, so be it. But you can weigh in on its prospects on the Precision Drilling CAPS page.

A utility player
There's nothing like cutting your own legs out from under you. That's what investors in SkyPeople Fruit Juice must be thinking, particularly after management priced a secondary offering at more than 15% below what the stock had been trading at. Considering the dilutive effects the offering would have on shareholders, it wasn't surprising they bid the stock down, but the Motley Fool Global Gains team reported earlier this year that SkyPeople already had enough issues to make it a less than optimal investment opportunity.

That hasn't stopped the CAPS community from giving it a top five-star rating. While some members might be looking at the juice maker as a lottery ticket, the way WPThatcher does, 98% of those who rate it still predict it will turn in market-beating performances.

Let us know on the SkyPeople Fruit Juice CAPS page whether you agree or think this company might be another example of Chinese small-cap excess.

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.

Chesapeake Energy is a Motley Fool Inside Value pick. Precision Drilling is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services 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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2010, at 4:16 PM, stockmannick wrote:

    I'm not sure how you can that there was a 'deal to merge'. After reviewing the court paperwork, I do not see signed merger papers. To include this in an "article" is somewhat irresponsible.

    I've consulted 3 lawyers in the merger field, based in Delaware, and have been given 3 indications that Pharmathene will have a difficult time proving that their efforts to merge were documented and accountable. I was told this will come to a 'he said/she said' case and that cases such as this, based on hear-say, usually are tossed.

  • Report this Comment On November 03, 2010, at 11:43 AM, mrwsystems wrote:

    is PIP a good entry point now at $3.40 (11/03/10) ???????????

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