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
|
| BSD Medical (Nasdaq: BSDM ) |
****
|
0
|
NA
|
| DepoMed (Nasdaq: DEPO ) |
*****
|
3
|
(77%)
|
| Ebix (Nasdaq: EBIX ) |
*****
|
3
|
16%
|
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
What if you make a revolutionary product but no one comes? No, I'm not talking about all those water-fueled engines that GM supposedly surreptitiously killed, but rather BSD Medical's hyperthermia cancer treatment systems.
Early hyperthermia devices proved unequal to the task of providing focused, controlled heat directed at specific tissue locations. As a result, the technique of melting tumors through microwaves got a bad reputation as being only marginally effective. BSD contends its systems have advanced far beyond those early efforts and are an effective tool for doctors treating cancer patients. The problem has been in getting someone to pony up for the wildly expensive machines (they apparently go for around $350,000 each). They sold just one last quarter and all of three over the past half year.
Thermal ablation techniques are a valid science as seen by Angiodynamics (Nasdaq: ANGO ) and its competing radiofrequency ablation device, as well as Boston Scientific's (NYSE: BSX ) use of the technology for treatment of excessive menstrual bleeding.
The turning point for BSD might be its new MicroThermX, a compact microwave generator system. The problem remains, though, overcoming resistance to the value hypertherapy offers and getting an appropriate level of reimbursement by third-party payers. BSD Medical might just be a better takeover candidate than a stand-alone company. Because of the drop in sales last quarter, it laid off personnel and closed a satellite office. While expense control is necessary, it's harder to grow the business when you've got fewer people pulling for you. Thus one of the rivals above might end up being interested in the technology BSD offers, but it might need to first put together a few quarters of good sales growth to attract a buyer.
While the CAPS community is bullish on BSD's potential -- 95% of the nearly 200 members rate it to outperform the market averages -- I remain skeptical about it being able to overcome the high hurdles in front of it, and it's shown a propensity for diluting shareholders. Let us know in the comments section below or on the BSD Medical CAPS page whether the medical device maker can withstand the heat.
All hot and bothered
Drug maker DepoMed faces something of a similar situation with Gralise, a treatment for post-herpetic neuralgia, the pain that accompanies patients who develop shingles. Despite getting FDA approval for the drug, its partner Abbott Labs (NYSE: ABT ) didn't want to bring it to market. As the Fool's Brian Orelli correctly predicted, DepoMed will regain the rights to Gralise and will market it itself by the end of the year.
DepoMed has a cloud hanging over it, though, as its CEO up and quit last month for "personal reasons." That's never a very good sign, particularly coming as it does so soon after the Gralise approval. Maybe he got a better offer somewhere else, but companies and their managers usually opt for orderly transitions in the executive suite, not a quick run for the exits. And it wouldn't be the first bit of trouble DepoMed has had with its drugs.
Highly rated CAPS All-Star zzlangerhans thinks there may be something amiss with Gralise, since companies like Abbott typically don't shell out tens of millions of dollars for drugs they want nothing to do with.
Give us your opinion on the DepoMed CAPS page, or add it to your watchlist.
Don't be alarmed
Motley Fool Rule Breakers selection Ebix is still laboring under its own cloud of suspicion after an anonymous short-seller called into question the probity of the insurance software provider. While Ebix categorically denied the allegations, the stock, which had been trading at record highs before the charges were published, remains 27% below those levels.
Previously Ebix was able to avoid its sector's shortfalls, exceeding expectations when Amdocs and others were missing them. But the market remains in a state of flux, as evidenced by Amdocs broadly beating forecasts, but Ebix's biggest rival, Computer Sciences (NYSE: CSC ) , saying it was going to fall way short. With Ebix itself due to report earnings tomorrow, we may find its operations just as much of a mixed bag.
Add Ebix to the Fool's free portfolio tracker and stay on top of all the news as it develops.
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.
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