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, 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

Amarin (Nasdaq: AMRN  ) **** 3 75%
Arcos Dorados (Nasdaq: ARCO  ) **** 0 67%
Kratos Defense & Security Solutions (Nasdaq: KTOS  ) **** 3 152%

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
With the FDA accepting the New Drug Application from fish-oil salesman Amarin for its high-triglyceride therapy AMR-101, it can continue pursuing expanding the drug to new indications, including treatment for the reduction of cardiovascular events like heart attacks and strokes. No longer satisfied with lowering cholesterol being the sole indication for its use, Amarin sees wider potential and the regulatory agency has already approved its new trial design. Amarin is enrolling patients in the trials, but now will await the FDA's decision on its triglyceride therapy application, which should be out by July.

Such developments are why CAPS members overwhelmingly think it will outperform the market. But previous management statements about not wanting to sell the company have weighed on the shares and some, like CAPS member baselineace, say its valuation in the face of having no sales is a bit much. Let us know in the comments section below or on the Amarin CAPS page if you think this will become a big fish in a small pond, and add it to your watchlist to be notified of the latest developments.

Pump up the volume
Will the stock of Latin American McDonald's (NYSE: MCD  ) franchisee Arcos Dorados start the next leg up to complete the second arch of the famous logo? Earlier this year, I said its chart represented the front half of the Golden Arches, as it took off sharply after its IPO. Since then, the stock tumbled close to its IPO price of $17 a share but has bounced off those lows.

There's some sense in believing it will make new highs. Arcos owns Mickey D's Latin American operations, and derives a third of its revenues from Brazil, and though profits were hurt by the country's currency depreciation, it saw 24% sales growth this past quarter and expects comps to rise 15% to 16% in the third quarter.

Not everything is golden, however, as profits are expected to come in significantly lower due to compensation expenses, one-time note redemption charges, and further currency depreciation. A recent secondary offering at $22 a share didn't help, either.

 Many investors are attracted to the demographic trends which suggest McDonald's will only get bigger in Latin America, which likely explains why 98% of the CAPS members rating Arcos Dorados agree. Add the burger joint to your watchlist and let us know in the comments section below whether it will make the return trip up.

Deep freeze
When it comes to defense contractors, Kratos Defense & Security Solutions isn't usually the first name that comes to mind. Lockheed Martin (NYSE: LMT  ) , Northrop Grumman (NYSE: NOC  ) , or Boeing (NYSE: BA  ) are likely to be the contractors you associate with missile defense systems, jet fighters, and logistical support.

While Kratos is deeply involved in missiles, rockets, and weapons systems, it also offers some pretty mundane equipment, like expeditionary field refrigerators. You just don't realize the need for keeping perishable items on the front line safe and fresh, but it will be worth more than $8 million to Kratos over the life of the multiyear contract it just won for Army and Air Force versions of the units.

The low profile also represents an opportunity to enter a position while it's still discounted. Kratos trades at a far lower multiple to its sales compared to any of the larger contractors that might be household names. CAPS members think so, with 93% of those rating it thinking it will beat the broad market averages.

Add Kratos to the Fool's free portfolio tracker and tell us on the Kratos Defense & Security Solutions CAPS page if playing good defense is a good offense move for your portfolio.

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.

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 Lockheed Martin and Northrop Grumman. Motley Fool newsletter services have recommended buying shares of McDonald's. 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.


Read/Post Comments (3) | Recommend This Article (6)

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 December 11, 2011, at 12:24 PM, skm1965 wrote:

    I can't understand your giving EPS estimate for 2012--but not addressing KEY question--why stock dropped. Have you looked at Epadel-Mochida's patent--US PTO concern about duplication?Give us more information on competitive threats--which are key to stock price.This mumbo-jumbo data is useless.

    Take a look at:

    http:/www.mochida.co.jp/english/news/2010/0401.html

    Read article by Nikhil Mehta of Decision Resources.

  • Report this Comment On December 11, 2011, at 12:33 PM, skm1965 wrote:

    The best writeup so far on Amarin is:

    http://decisionresources.com/News-and-Events/In-The-News/Nik...

    Would like your comments on this article.

  • Report this Comment On December 12, 2011, at 10:55 PM, griderX wrote:

    Regarding ARCO...what worries me is the current gross margins over the last two years have been floating around 15-17%. MCD on the other had had gross margins of around mid 30%'s with about the same revenues ARCO is currently showing. I emailed Investor relations to see if managment has any plans for explanding gross margins to the 30's range and how they paln on doing this...still have not heard back from them.

    What is your take on that?

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