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

Resource Capital (NYSE: RSO  )

****

4

0%

Stillwater Mining (NYSE: SWC  )

****

4

(7%)

Taseko Mines (AMEX: TGB  )

****

2

50%

Sources: Yahoo! Finance, Motley Fool CAPS.

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
REITs like American Capital Agency  (Nasdaq: AGNC  ) , CYS Investments, and Resource Capital benefit from the Fed's low-interest-rate policies because they can borrow money cheaply. They've also been offering eye-popping dividend yields that offer an alluring, but potentially dangerous attraction to investors.

Unlike the mortgage REITs, though, Resource Capital focuses on commercial real estate-related assets and high-yield commercial finance assets. For example, it recently teamed up with Citigroup to put together a new collateralized loan obligation arrangement that will pool high-yield, high-risk loans and slice them into securities of varying risk and return. Sound familiar? CLOs are very similar to the CDOs that are identified with the financial crisis. Delinquencies had been falling for four months, though ratings agency Fitch reports a recent uptick breaking that trend.

Resource Capital remains a popular pick on CAPS, where 96% of those rating the specialty finance outfit think it will outperform the broad market averages. Let us know your thoughts in the comments section below or on the Resource Capital CAPS page, and add it to your Watchlist to be notified of the latest developments.

Not so precious
Now that Stillwater Mining has closed the deal for Argentinean gold miner Peregrine Metals, it can put the hand-wringing over the purchase price behind it and look toward recovery.

The economy in general, and the auto industry in particular, have weighed heavily on Stillwater and industry peer North American Palladium (AMEX: PAL  ) . One of the principal uses of palladium is in catalytic converters. This trend may explain why the former was looking to add diversity to its portfolio with gold, copper, and other metals by purchasing Peregrine Metals recently.

The price tag may have been too high, though, and management will now be put to the test to see whether its contention that the deal should have been viewed on the basis of the price of copper was correct.

CAPS All-Star JackCaps thinks the market unfairly beat up Stillwater, as it is an otherwise solid choice, putting him in the camp of the vast majority of the Motley Fool investor community who believe it will beat the Street. Add Stillwater Mining to your Watchlist, and let us know in the comments section below what you calculate the risk will be to your portfolio.

Buckle up
Another mine-company hopeful is Taseko Mines, which is also counting on copper to pull it up. With supply of the metal still a concern as strikes in Indonesia and Peru escalate, prices have risen 15% from their 2011 nadir. Add to that an improving situation (fingers-crossed!) in the European debt crisis, and conditions for increased demand could see prices rising further.

This all comes about as Freeport McMoRan (NYSE: FCX  ) halted production at its Grasberg mine in Indonesia, which will add to the deficit being forecasted for the 20 million tonne copper market. It's just one reason Joy Global believes the metal has "the strongest fundamentals."

CAPS member pchop123 would be hard-pressed to disagree, considering the mining project it's beginning: "great story about to unfold-they are now going to begin drilling an extremely profitable mine based on the assay after the approval of the Canadian government and some good PR with the local Indian tribes."

Add the miner to the Fool's free portfolio tracker and tell us on the Taseko Mines CAPS page whether you think the industrial metal will help pull the copper miner up by its bootstraps.

Fool contributor Rich Duprey owns shares of North American Palladium, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Citigroup, Joy Global, and Freeport-McMoRan Copper & Gold. 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. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (8)

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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 October 22, 2011, at 3:59 PM, zorro6204 wrote:

    Kudos where it's due for not lumping in RSO with agency REIT's, as seems to happen in just about every article posted here.

    Well . . . mostly, though you did include them with AGNC and CYS, two companies which are agency REIT's. As to your conclusion regarding the benefit from the Fed's low-interest-rate policies because "they can borrow money cheaply", it certainly applies to the leverage model of companies like NLY and peers, but RSO? Not really, except in the sense that investors in a new CLO would bargain for a lower return in a low interest rate environment. But the loans the CLO makes will logically have lower rates as well, so that cuts both ways.

    The last time someone really broke it down, RSO actually benefited from HIGHER rates in its legacy securitizations, the adjustment clauses in the floating rate loans created more cash flow than the investor share going out.

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