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 and 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 Street Picks

Estimated EPS Growth Next Year

American Capital Agency (Nasdaq: AGNC  )

****

3

NA

Paragon Shipping (NYSE: PRGN  )

*****

3

(79%)

Rubicon Minerals (AMEX: RBY  )

****

1

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
When the Great Depression ravaged the country, housing prices at their worst plummeted 31% from their previous highs. Well, the current housing crisis is now officially worse than the Great Depression. According to Case-Shiller data, housing prices have entered into a double-dip situation and are 33% below their highs.

Like Annaly Capital Management (NYSE: NLY  ) , American Capital Agency has taken what appears to be the expedient route of investing in mortgage-backed securities that are guaranteed by the taxpayer -- Fannie Mae, Freddie Mac, Ginnie Mae, and other government institutions. Some other mortgage REITs, such as Chimera Investment (NYSE: CIM  ) , venture into non-agency-backed mortgage securities.

It's likely that American Capital Agency will build on the gains it has achieved thus far -- shares have risen 32% over the past year. Mortgage-backed bonds generally prosper when interest rates are stable over a fairly long period of time, because they tend to give homeowners little incentive to refinance their mortgages. The Federal Reserve has little incentive right now to raise interest rates in the current environment, meaning American Capital Agency -- and Annaly and other mortgage REITs investing in agency-backed securities -- should prosper.

That said, American Capital Agency uses a lot of leverage to generate the returns it has, so investors need to be mindful that it will have to reduce that debt when rates start to rise.

Fed Chairman Ben Bernanke seems loath to raise rates now, which is why CAPS member empireruler likes the stock: "Low interest rates and we will see a low interest rate as long as Bernanke is in charge of the fed and this will make the dividend safe. The company has shown [it's] bringing in more cash than the dividend compared to NLY witch i do like don't get me wrong but if the market increases [substantially] this [stock] will still outperform."

Let us know in the comments section below or on the American Capital Agency CAPS page what you think the chances are that the REIT will time interest rates just right.

Is the QE3 sailing?
If there's another industry that seems as devastated as housing, it's shipping. The dry bulk shipping market has run aground as charter rates collapsed among an overabundance of ships plying the seas. Genco Shipping & Trading (NYSE: GNK  ) was one of those adding to its fleet size, and it paid off -- somewhat, anyway, as top-line revenues increased marginally last quarter, where others saw declines. But operating expenses jumped and time chart rates tumbled, leading to a 64% drop in earnings per share.

Paragon Shipping also remained profitable for its 15th consecutive quarter, but its revenues were down along with time charter equivalents and higher expenses. It was hurt by the Korea Line bankruptcy earlier this year, and as the dry bulk market hasn't improved, it decided to suspend its dividend to conserve cash. It's a smart move financially but one rarely popular with investors, and its shares are down 42% so far this year.

With 97% of CAPS members rating Paragon to outperform the broad market averages, it seems they agree with CAPS member IIcx that the dry bulk shipper has bottomed out. Give us your opinion on the Paragon Shipping CAPS page, or add it to your watchlist to see whether it will sail again.

A big hole
The markets were less than impressed with Rubicon Minerals' report of its F2 gold zone in the Red Lake district. Earlier this year, Rubicon's consultant on the project scaled back by 10% the inferred resource estimate and sliced by 30% its high-end estimate of F2's total geological potential of up to 9 million ounces of gold. But with several promising core samples ranging from 22.5 to 148.1 grams of gold per ton, the mine still has the potential to generate a gold rush all its own.

Speculation still surrounds Rubicon's potential as a takeover candidate. With Goldcorp (NYSE: GG  ) a close neighbor in the prolific Red Lake district, it offers the most likely candidate. And with gold once again seeing forecasts to hit $5,000 an ounce, allowing such a potential, well, gold mine to develop right next door without trying to cash in seems odd. But Goldcorp did just close a $3 billion deal to buy Andean Resources last year, so it might want to digest that first.

Add Rubicon Minerals to the Fool's free portfolio tracker, and see whether it can dig up new opportunities for growth.

Swing for the fences
When you're 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.

The Motley Fool owns shares of Annaly Capital and Chimera Investment. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (13)

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 June 15, 2011, at 10:13 PM, yieldmaven1 wrote:

    I think these REITs are under covered. SA has a decent article on AGNC: http://seekingalpha.com/article/273139-a-deeper-look-at-amer...

  • Report this Comment On June 16, 2011, at 11:04 AM, IIcx wrote:

    I think the part everyone is missing about the shipping "glut" is the fact that it principally effects the the cape segment.

    PRGN, in my opinion, offers excellent value with no exposure to the Cape segment. Its also got charter coverage to cover 2011 and 50%+ of 2012 so its positioned to ride out the storm.

    Note: I own the stock and have been buying the recent dips but will hold it for at least a year.

  • Report this Comment On June 21, 2011, at 3:24 PM, IIcx wrote:

    : )

    I do enjoy being right every once and a while.

    There's nearly zero resistance between $2 and 2.60 and we're currently at $1.99 -- up 4%+ today.

  • Report this Comment On June 21, 2011, at 7:40 PM, imacg5 wrote:

    Motley Fools have had a five star rating for PRGN for three years.

    Here's a three year chart for PRGN:

    http://caps.fool.com/Ticker/PRGN/Chart.aspx?source=icasittab...

    PRGN lost the revenue from the containers when they sold them to TEU.

    They also took a $14 million non cash loss on the deal.

    They will also have falling revenue from the following expiring charters.

    In August the Crystal Seas comes off a charter of $33,000 a day.

    In September the Golden Seas comes off a charter of $43,500 a day.

    In November, the Kind Seas comes off a charter of $45,500 a day.

    Current charter rates are much lower.

    And they will soon have 68 million shares outstanding.

  • Report this Comment On June 22, 2011, at 12:28 PM, IIcx wrote:

    Good points imacg5 as far as they go.

    - Consensus EPS forecast for 2013: 0.57

    - 200% earning surprise reported 5/26/11

    - short interest on the stock has been heavy over the last couple of months driving it to an all time low

    - five charters expire in 2011, six expire in 2012, one expires in 2013 but they expire during the typically stronger fall and winter months

    - growing the fleet: contracted to acquire seven vessels for an aggregate remaining purchase price of $134.8 million -- scheduled to be delivered from October 2011 to December 2012

    - February 25, 2011, they entered into commitment for a new $135.0 million senior secured amortizing credit facility with a syndicate of major European banks to fully-finance newbuilding program commitments

    - Shareholders’ equity has consistently grown from 2006-2010

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