Hidden Stocks for High Returns

To paraphrase the song, 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. 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 fewer active recommendations on CAPS, though the community thinks they still have outsized potential.

Stock

CAPS Rating (out of 5)

Number of Active Picks

Estimated EPS Growth Next Year

Compugen (Nasdaq: CGEN  )

*****

45

NA

Hallmark Financial Services (Nasdaq: HALL  )

****

84

192%

Teucrium Corn Fund ETV (Nasdaq: CORN  )

****

53

NM

Source: Motley Fool CAPS; NA = not available; NM = not meaningful for an exchange-traded fund.

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 them before you plug them into your own portfolio.

Listen to this story
Typically, I'm leery on buying "story stocks." You know the ones. They sound good in theory if they could only get their product recognized … except they can't get their product to market. On the surface, Compugen sounds just like such a story stock.

The genomics-based drug and diagnostic discovery company hasn't gotten a single drug candidate out there yet, all the while losing money hand over fist. Last month it reported first-quarter losses of $1.9 million and had no revenues. Hardly sounds like a promising investment.

Yet Compugen has some features that make it an interesting story nonetheless. While its losses were narrower than the year-ago period and its revenue situation is going to be subject to fluctuations, the real juicy part is that not only do small biotechs like Flamel and Seattle Genetics (Nasdaq: SGEN  ) want to get in on what Compugen is offering, but big-name pharmaceuticals like Bayer and Pfizer (NYSE: PFE  ) want in, too -- all of them have signed collaboration agreements with Compugen in the past two years. No doubt that has to do with having more than 30 candidates at various stages in the pipeline.

The handful of All-Star CAPS members rating Compugen are unanimous in their opinion that it will outperform the broader market averages, while 91% of the wider CAPS community agrees with the sentiment. Add your own thoughts on its potential on the Compugen CAPS page.

These stocks are shaking
Property and casualty insurers might be in for a rough patch. New Zealand has been the epicenter of three major earthquakes in less than a year, Japan is still in tumult, tornadoes and flooding have wreaked havoc here at home, and hurricane season is getting under way, with climatologists expecting a busy year. That might spell trouble for some big-name insurers like Allstate (NYSE: ALL  ) , but investors would be wise to sift through companies for some interesting plays that might not have the same type of exposure.

For example, P&C insurers like Hallmark Financial Services and AmTrust Financial Services specialize in niche areas that are underserved by the big players. AmTrust covers things like legal expenses in the event of unsuccessful litigation, property damage caused by consumer products for residential properties, and extended warranties for computers, consumer electronics, appliances, and cars. Hallmark covers higher-risk individuals and businesses, such as health-care professionals who can't get coverage elsewhere because of higher loss histories, and liability insurance for regional airports and pilots who have trouble finding other coverage.

Those clients carry greater risk, but the insurers are able to charge more for it. Hallmark, however, has had a spotty record thus far, and CAPS member cheaply says investors who thought last year would be a turnaround for them were disappointed.

So, there are a lot of folks who thought last year that Hallmark financial would do fine, if not great ... that never happened, so the question is ... is it cheap enough now? After all, this year the financial sector is supposed to do good things, right? Maybe.

Let us know on the Hallmark Financial Services CAPS page whether you think this stock will crash and burn.

Stock on the cob
You've heard about peak oil, but how about peak corn? As we pump ever more corn into our gas tanks, benefiting large ethanol producers like Archer-Daniels Midland (NYSE: ADM  ) , the USDA says that we've drawn down on our supplies in the silos to just 695 million bushels. That might sound like a lot, but according to grain analysts, it amounts to just a 15-day supply -- the lowest level of corn in five years.

No doubt that helps explain why corn prices are at record highs and why the corn ETF Teucrium Corn Fund ETV has returned 79% over the past year. If our recent weather-related disasters are any indication, particularly those that ripped through the country's hearltland, then we're likely to see higher prices in the future, and the ETF should rise, too.

CAPS member dchamp points to all of those factors as reasons for betting on Teucrium. Add the ETF to the Fool's free portfolio tracker, and let us know on the Teucrium Corn Fund ETV CAPS page whether it's as President Eisenhower once noted: "Farming looks mighty easy when your plow is a pencil and you're a thousand miles from the cornfield."

Keep a high profile
We've had three stocks today that hold a lot of promise for investors but possess equally persuasive arguments for swearing them off. That'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.

The Motley Fool owns shares of AmTrust Financial Services. Motley Fool newsletter services have recommended buying shares of Pfizer. 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 the article. You can see his holdings. The Motley Fool has a disclosure policy.


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