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 Dawson Geophysical to Sotheby's. 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.

It's a whiteout
When you make a purchase online and use either a credit card or check, there's a flurry of activity that happens in a matter of seconds that lets the merchant know whether you've got enough money in your bank account to pay for the purchase. Welcome to LML Payment Systems, the little-known name behind that account check that looks about ready to grow big time.

Back in 2008, LML launched a flurry of lawsuits against some big-name companies accusing them of infringing on its patents. Many times when you see some upstart suing a company like eBay (Nasdaq: EBAY) or Citigroup, you think "patent troll," and while some accuse LML of being just that, it has been around for quite a few years and has been aggressively protecting its patents. And many targets have settled with LML over the past year or so, including Citigroup, HSBC, Fifth Third Bancorp, and Bank of New York Mellon. eBay's PayPal was the latest to submit, agreeing to pay $7.5 million.

With settlements averaging around $4 million, it could be worth more than $100 million to LML when all is said and done and set it up as the primary tollgate collector on consumer check-conversion and e-check transactions flowing through the automatic clearinghouse (ACH) network.

While LPL is flying under Wall Street's radar right now, it might not be much longer. The CAPS community is unanimous in its belief it will outperform the broad market averages, but you can see if the check clears by giving us your opinion on the LML Payment Systems CAPS page.

Under the radar
Despite reporting in line with analyst expectations on revenues and slightly ahead of Wall Street's earnings forecasts, small cleaning products company Zep got dirtied up by the markets. Its shares are down 18% so far in 2011 and have fallen 28% over the past year. It has essentially failed to derive any benefit from the country's improving manufacturing base; for example, W.W. Grainger (NYSE: GWW) -- a Zep distributor -- has grown 28%.

Of course, cleaning and maintenance supplies are just one component of the distributors' overall product offerings, but the incongruity seems stark. Even more so, Home Depot (NYSE: HD), Zep's biggest customer, reported a surprisingly strong quarter, yet it hasn't translated into higher sales for the cleaning company. However, since the do-it-yourself warehouse upped its guidance for the year, maybe the CAPS community, which remains bullish on Zep's potential, thinks the coming quarter's earnings will reflect the new outlook.

Spruce up the Zep CAPS page by leaving your thoughts on whether it can clean up both its image and stock price.

In hot pursuit
Investors took notice this year when a director of ZIOPHARM Oncology sank more than $11 million into the biotech's stock, thinking if someone was willing to drop a large amount of coin it might be worth piggybacking on.

It wouldn't necessarily have been a bad move, as the stock is up 25% so far this year, even though it's given back about 10% from the highs it hit. Yet as I noted back in January, the investment was actually through the director's privately held company Intrexon, which took a 12.5% stake in exchange for ZIOPHARM's using its unique delivery system with the various therapies the biotech has under development. That setup has CAPS member AGCAPS1 leery:

First review the released statements since 2009. Then read about what this company does. They research on eliminations of the existent cancer drugs side effects. This company works in drugs researching provided by Intrexon. If they become successful "many years away", most likely the Intrexon will be the one profit from it. The stock is overpriced.

Although there's strong bullish sentiment on CAPS that ZIOPHARM can beat the indexes, you can watch how the outside investment plays out by adding the biotech to the Fool's free portfolio tracker.

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.