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. Overlooked by Wall Street and Main Street, and thus undervalued, these stocks hold the best potential for delivering 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)

No. of Active Picks

Est. EPS Growth Next Yr.

ReachLocal (Nasdaq: RLOC  )

****

80

NM

Rockwell Medical Technologies (Nasdaq: RMTI  )

****

53

0%

UR-Energy (AMEX: URG  )

****

98

NA

 

Source: Motley Fool CAPS. NA = not available. NM = not meaningful; ReachLocal is seen going from a loss of $0.27 per share this year to a profit of $0.18 per share next year.

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.

Eat up!
Local search and advertising may have been a hot ticket when it seemed everyone wanted to offer some deal for you to jump on, but after Groupon had to restate its financials for its IPO because of fuzzy accounting, the ardor for the space seemed to cool off. ReachLocal, which hit $28 a share at the start of the year, trades at just a third of that now. Local.com (Nasdaq: LOCM  ) is down by a similar percentage. When everyone can offer you a deal, there's no competitive moat to protect you. I'm sure Google is very happy Groupon didn't accept its $6 billion offer.

I'm worried about ReachLocal's global expansion at this time. Still shy of profitability -- although last quarter's loss was less than expected -- moving overseas when it doesn't have its domestic market nailed down seems a foolhardy move.

CAPS member Clint35 thinks the online advertising model should allow it to keep expenses low, regardless of where it's operating:

They're a local advertising specialist. Which means they help businesses advertise to people in their local area. But the advertising is done online. I would think that business model helps keep costs low. Low costs can help make big profits. And I can't forget, small cheap and under-followed.

Let us know in the comments section below, or on the ReachLocal CAPS page, if investors will reach out for the stock. Also add it to your watchlist to be notified of all the latest developments.

Down but not out
The market's given Rockwell Medical a kidney punch, cutting its stock in half from the highs hit earlier this year, but the end stage renal disease and kidney disease specialist has under study a water-soluble iron called SFP, which treats iron deficiency anemia. That may allow it to take a large portion of the dialysis market.

With a timetable for getting SFP approved late next year for introduction to the market in 2013, Rockwell hopes to leverage SFP to build sales within the dialysis segment. It also recently acquired an abbreviated new drug application for an injectible vitamin D that dialysis patients could use. A new reimbursement plan by Medicare and Medicaid for dialysis could also give Rockwell to profit from its existing line of business while adding higher margin renal products.

The worldwide market for anemia drugs for kidney patients is expected to grow to $8.8 billion by 2015 as more companies target the market that had once been the province of Epogen, Amgen's (Nasdaq: AMGN  ) anemia wonder drug.

With a sizeable slug of stock held by insiders, CAPS member PatienceGrasshpr thinks it's a good stock to hold for the long haul. Add Rockwell Medical Technologies to your watchlist, and let us know in the comments section below whether the FDA will deliver this renal disease specialist a sucker punch.

Bouncing back from disaster
The CAPS Uranium sector is down 9% over the past year, which is not so bad when you consider UR-Energy is down 14%, Cameco (NYSE: CCJ  ) has been cut by nearly a third, and Uranium Energy is down 18%, though all are down significantly from their 52-week highs.

Ever since the Fukushima disaster, there doesn't appear to be a catalyst present either that will change the course for these stocks either, though as my Foolish colleague Aimee Duffy suggests, a DOE approval of USEC's (NYSE: USU  ) loan guarantee could show a commitment by the government to a nuclear future.

The industry keeps moving forward, however, and UR recently received a Class V designation for its Lost Creek project, which now only awaits final permitting and certification to begin mining.

That could explain why the CAPS All-Stars rating UR are unanimous in thinking the junior miner will go on to beat the Street, but add the uranium specialist to the Fool's free portfolio tracker, and tell us on the UR-Energy CAPS page if you think this is still a glowing opportunity.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of ReachLocal and Google. 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. The Motley Fool has a disclosure policy.


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