Hidden Stocks for High Returns

Like the song says, investors are looking for stocks to love in all the wrong places. They'll pile into the momentum stocks everyone else buys, but ignore lesser-known opportunities for fear of straying from the crowd.

Yet the search for undiscovered jewels has informed many of our Motley Fool Hidden Gems picks, from Prestige Brands to Seaspan. Overlooked by Wall Street and Main Street, and thus undervalued, these stocks hold the best potential to deliver outsized returns.

The Motley Fool CAPS community knows a bargain when it sees one. Below, you'll find several under-the-radar stocks that brim with promise. These companies have garnered 100 or less active recommendations on CAPS, though the community thinks they still have outsized potential.

Stock

CAPS Rating (out of 5)

No. of Active Picks

Est. EPS Growth Next 5 Yrs.

China Ming Yang Wind Power Group (NYSE: MY  )

****

48

NA

Crimson Exploration (Nasdaq: CXPO  )

*****

62

10%

Cypress Sharpridge Investment (NYSE: CYS  )

*****

70

NA

Source: Motley Fool CAPS; NA = not available.

Naturally, we want you to look a bit closer at these stocks before buying. Maybe investors are staying away from these stocks for a reason, so make sure there's nothing seriously wrong with the company before you plug it into your own portfolio.

Any way the wind blows
The market for wind power in China has changed dramatically over the years as demand for energy has grown. That's creating opportunities for local, domestic suppliers to gain large swaths of market share. Western wind turbine makers have seen their share of the Chinese market drop from 71% in 2005 to just 14% last year, giving A-Power Energy Generation Systems (Nasdaq: APWR  ) opportunities to expand.

With major players such as Sinovel, Xinjiang Goldwind Science & Technology, and Dong Fang still dominating the market, surging demand allows smaller companies like China Ming Yang Wind Power Group to establish a foothold.

CAPS member WallytheWalrus is impressed that Ming Yang has maintained profitability while implementing its expansion plans. Highly rated All-Star rijoker considers that consistency a sign of future greatness:

Today's earnings release was a very positive sign for this company and will have some good growth for the next year or so. I will continue to watch this as the growth continues and we are now three quarters of profits. I am not usually an investor in solar or wind energy, but feel that wind (Ming Yang) will continue to do good and grow in China.

A slow burn
The coming cold weather season ought to warm the hearts of investors in natural gas plays such as Crimson Exploration, EOG Resources, and even Chesapeake Energy (NYSE: CHK  ) . But with persistently high inventories, winter will likely be cold comfort to investors.

Even though inventory levels surprised analysts by dropping by 6 billion cubic feet, causing a spike in the share price of United States Natural Gas (NYSE: UNG  ) , there is still an abundance of supply, and producers are producing even more. While the immediate future might not be amenable to producers, CAPS member Arize says the long-term need for natural gas will help create profits for investors:

New methods of extracting natural gas and oil from shale are making instant millionaires out of ordinary citizens. If you aren't so lucky as to own a farm sitting on top of energy deposits in Pennsylvania or Texas, you can still get in on the action by purchasing shares of Crimson Exploration (CXPO). This little-noticed company owns big deposits of gas and oil in Texas and Louisiana.

Head over to the Crimson Exploration CAPS page, and let us know whether you think this company will be able to unearth additional growth.

The REIT place for your money?
With REITs such as Cypress Sharpridge Investment and American Capital Agency (Nasdaq: AGNC  ) sporting yields near 20%, investors would be wise to heed warnings about chasing yield. Where there are high returns, there's also high risk.

However, for the forseeable future, the Fed's quantitative easing policies will let these investments continue their borrow-and lend practices, whatever the future consequences. That probably helps explain why 96% of the CAPS members who've rated Cypress believe it will keep churning out market-beating returns. But only you can decide whether such high-yield investments deserve a spot in your portfolio. Add Cypress to the Fool's free portfolio tracker to keep on top of all the news and analysis about this REIT.

Keep a high profile
These three stocks hold a lot of promise for investors, but possess equally persuasive arguments against them. That's why you need to look beneath the headlines and press releases for a more complete picture of where your money is going.

Also, check into Motley Fool CAPS, and tell us whether these low-profile stocks are on their way to higher returns.

Chesapeake Energy is a Motley Fool Inside Value pick. Motley Fool Options has recommended a write covered strangle position on Seaspan. The Fool owns shares of Prestige Brands Holdings, and Seaspan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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


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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 December 01, 2010, at 11:38 AM, SweetMircha wrote:

    APWR, SUCKS in my opinion. It's my absolutely worst performing stock in my whole big portfolio. I'm down nearly 70% on an early portion purchase of it. Time to call in the ambulance to haul it away from me and notify the bankruptcy trustees that it's keeled over, bleeding & dying.

    The next one to go should be FUQI I suppose. Then I'll be clear of Chinese owned stocks. None soon enough.

    Seeing that crash & burn ruined my day when I logged onto my broker account, as its the 1st (APWR) on my list.

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