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 Rofin-Sinar Technologies to OYO Geospace. 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.

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.

Under the radar
With its acquisition of Voyager Learning, K-12 education materials specialist Cambium Learning Group expected it would achieve growth through synergies associated with similar products and implementing best practices across two management teams. Such is the stuff dreams are made of, as companies seem to rarely achieve the synergistic benefits they tout.

While Cambium's sales jumped 38% last quarter, that's only because of the Voyager acquisition. Besides, costs are 69% higher, and internal order volume -- a metric Cambium uses as a leading indicator of revenues -- is plummeting. Across all segments, volumes fell 11%; but particularly in the Voyager segment, the bottom fell out and volumes dropped by 20%.

It really shouldn't come as a surprise considering the sorry state of state budgets across the country. Princeton Review (Nasdaq: REVU), better known for its test-prep courses, exited the K-12 services field in 2009 because the school budget-cutting process took too great of a toll and will end its supplemental education business at the end of the 2010 school year. Oh, and test prep ain't going so well, either.

K12, a provider of online class instruction for K-12 students, saw profits plunge 69% in November, but the stock has managed to stage a comeback, rising 30% after a precipitous fall.

I previously indicated my belief that with expenses up, receivables exploding, and a lack of opportunities to break into school budgets anytime soon, Cambium Learning was a stock that was going to be left back:

Costs are rising, receivables are up, sales volume is down, stimulus spending is drying up, and states are facing huge budgetary holes. The outlook doesn't look so good for the next year or so.

My view hasn't changed, but you can tell us on the Cambium Learning Group CAPS page where you agree this stock is a dunce, or it's about to go to the head of the class.

Good for what ails you
Biopharmaceutical Rockwell Medical Technologies -- which targets end-stage renal disease, chronic kidney disease, and iron-deficiency anemia -- has recovered nicely from the failure last year of an experimental drug to meet one of the main goals in a mid-stage study. Over the first nine months of the fiscal year, revenues are up 13%, gross profits are up 37%, and net losses have sharply narrowed.

The worldwide market for anemia drugs for kidney patients is worth about $7 billion in sales each year, largely Amgen (Nasdaq: AMGN) and its breakthrough drug, Epogen. But many aside from Rockwell are looking to crack the code. Affymax (Nasdaq: AFFY) is just one that thinks it has a shot.

CAPS All-Stars are unanimous in believing Rockwell may yet succeed, so be sure to add it into the Fool's free portfolio tracker. Then head over to the Rockwell Medical Technologies CAPS page and let us know if it has the right prescription for growth.

In hot pursuit
With its shares trading for just pennies on the dollar, Sunesis Pharmaceuticals is having a harder time than Rockwell in generating any investor confidence that its experimental leukemia drug, vosaroxin, will do any better than the failure Seattle Genetics (Nasdaq: SGEN) recently suffered.

Vosaroxin is starting late-stage trials, however, and while results won't be available until sometime next year, if it can make it there could be a huge market for the drug. Since there are few treatments available for acute myeloid leukemia, Sunesis would have much of the playing field open to itself.

Of course, it needs to succeed first, but CAPS member supersamthe1man says since Sunesis focuses all of its energies on just this drug, he's looking for it to win. Obviously, the risks are high should it fail.

Add Sunesis to your watchlist to keep on top of all the news and analysis about this biotech's potential.

Keep a high profile
We've had three stocks today that hold a lot of promise that investors want to get behind, but possess equally persuasive arguments for swearing them off. It's why you need to look beneath the headlines and press releases to get a fuller 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.