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 St. Picks

Est. EPS Growth Next Year

China Green Agriculture (NYSE: CGA  )

****

3

31%

DRDGOLD (Nasdaq: DROOY  )

*****

0

NA

Magellan Petroleum (Nasdaq: MPET  )

*****

0

NA

Source: Yahoo! Finance; Motley Fool CAPS; NA = not available.

Remember, without much 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
Noting that only a very small percentage of farmers currently use the humic and fulvic acid nutrients it offers, China Green Agriculture expects that its business has plenty of room to grow. The company believes that it thus has competitive advantage over rivals like Yongye International (Nasdaq: YONG  ) and China Agritech  (Nasdaq: CAGC  ) .

But a recent admission has cast CGA in a negative light. The company has stated that Chinese companies regularly report different numbers to the State Administration for Industry and Commerce (SAIC) and the SEC. Investors must ask themselves whether they believe that's a valid excuse, or whether it leaves lingering questions over China Green Agriculture's own numbers, such as the 58% revenue jump the company says it posted last year.

With 96% of the more than 1,100 CAPS members who've rated China Green Agriculture confident that it will outperform the market, its seems that our investing community has settled the question for itself. Wall Street analysts have a dimmer view, with 67% of the handful rating the fertilizer maker expecting for it to underperform.

CAPS member cnbcgb, however, says the larger charges against CGA remain unproven:

The accusation of fraud is unsubstantiated. GG has seen nothing to suggest fraud. What they could see were good indicators of a growing company in an industry that is a necessity in China. How often do you get a chance to buy a stock with this much misplaced negative sentiment?

If the risk still seems too large for your own tastes, you can keep an eye on it with our free Fool portfolio tracker, and get all our Foolish news and analysis on the company aggregated just for you.

All hot and bothered 
DRDGOLD is one of the worst-performing gold miners, with shares down more than 25% year over year. Plagued by problems like the closing of its East Rand Proprietary Mines and the placement of its Blyvoor mine under judicial management, the South African miner has had its share of issues to deal with. That said, it may have finally turned the corner. Gold production grew 6% sequentially, and the company returned to profitability as total cash operating costs fell 5% on lower electricity costs.

South African peers like AngloGold Ashanti (NYSE: AU  ) and Gold Fields (NYSE: GFI  ) have had decidedly better results, with their shares rising 33% and 48%, respectively. Yet in surveying his prospects towards the close of 2010, CAPS member greenb95 said DRDGOLD looks like the better choice for future growth than Gold Fields:

Sold my GFI stake to move here: think DROOY has better upside potential. Got in below $5 because stocks are getting slammed! A healthy, solid mining company that pays a dividend. OOOOho baby!

You can dig up other nuggets of insight on the DRDGOLD CAPS page, then add it to your watchlist to keep tabs on its progress.

A precision investment
Small natural gas player Magellan Petroleum has also had its share of problems. Sales fell sharply, which led total revenue for the quarter to drop 53% to $4.5 million. Meanwhile, costs and expenses rose 5% to $8.2 million. Oil sales were down, too.

Yet the company was able to secure some good news, too. First, it gained a four-month extension on its deadline to complete the purchase of a 40% stake in the Evans Shoal gas field off the coast of Australia. Second, it secured a commitment from its investment partner YEP for the rest of the funds needed.

Despite the rough waters, CAPS members have been supportive of the natural gas developer, with all but one thinking it will outperform the broad market averages. You can contribute your own thoughts on what the development means on the Magellan Petroleum CAPS page.

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.

China Green Agriculture and Yongye International are Motley Fool Global Gains choices. The Fool owns shares of China Green Agriculture and Yongye International. 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 this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (6)

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 February 23, 2011, at 2:11 PM, kurtshrout wrote:

    "Noting that only a very small percentage of farmers currently use the humic and fulvic acid nutrients it offers, China Green Agriculture expects that its business has plenty of room to grow. The company believes that it thus has competitive advantage over rivals like Yongye International (Nasdaq: YONG) and China Agritech (Nasdaq: CAGC)."

    (1) To my knowledge, CGA is only selling humic acid and non-humic-acid fertilizer products, and not fulvic acid fertilizer supplement products like YONG. If this is incorrect, please specifically tell us how it is incorrect.

    (2) This isn’t an advantage that CGA has over YONG and CAGC. This is an advantage that all three companies share. (YONG has still only captured less than 5% of the available market share for its plant product.)

  • Report this Comment On March 10, 2011, at 1:46 PM, paldad2000 wrote:

    I understand what it means that sellers have not delivered shares. But what does it mean for the future of this stock?

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