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 to deliver outsized returns.

Stock

CAPS Rating (out of 5)

No. of Active Picks

EPS Growth Last Yr.

Est. EPS Growth This Yr.

InvenSense (NYSE: INVN  )

****

28

(38%)

(9%)

IntraLinks (NYSE: IL  )

****

57

(28%)

9%

The Motley Fool CAPS community knows a bargain when it sees one. Below, you'll find two 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.

Source: S&P Capital IQ, Motley Fool CAPS.  

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.

Always in motion
While standing in line yesterday at the Genius Bar, I watched a display of how through the use of an accelerometer, the iPad allows developers to create apps and programs that relate to the way the device is held. Depending on which way your tablet is facing, the image you're viewing swings around so it's always at the right orientation for you. Same thing goes for your smartphone.

I was intrigued enough by this to check out InvenSense, the manufacturer that integrates gyroscopic, sensor, and other technologies into a single “motion processing” chip for Apple (Nasdaq: AAPL  ) so it can include it within its iPad and iPhone. Its gyroscopes are also available for phones from HTC, LG, Motorola, and Samsung, and they're included in Google's (Nasdaq: GOOG  ) Ice Cream Sandwich Android design.

No wonder it's quickly gaining a following from both Wall Street and Main Street. CAPS member Jay92 says InvenSense has a runway before it that will last not years, but decades.

This stock will grow over 60% in the months to come. Profitable company with great upward growth opportunities. Great management and expanding into more mobile devices and motion sensing technologies. They hold patents that do not expire for ~20 years and are best-in-class at what they do!

Let us know in the comments section below or on the InvenSense CAPS page if you think this new chip technology leader will grab the imagination of investors everywhere, then add it to your watchlist to see if you'll end up with motion sickness as it soars to dizzying heights.

Looking cloudy
While not nearly as exciting as designing motion-processing chips, IntraLinks tackles complex, paperwork-intensive transactions that are time-sensitive in nature and puts the massive paperwork burden in the cloud, creating a simplified and organized venue where everyone can collaborate on the work. Importantly, the software-as-a-service platform is secure, compliant, and auditable, recording who did what when.

Its exchanges have proved useful for bankruptcies, M&A transactions, regulatory compliance, and general legal practices. It's a mundane business, but virtual data rooms are competitive, putting it up against bigger and better financed rivals, such as RR Donnelly & Sons, which recently entered the space; privately held Merrill; or Epiq Systems (Nasdaq: EPIQ  ) , which has a grip on the bankruptcy proceedings segment.

All the competition has weighed on IntraLinks' stock, and its shares have fallen 80% from their highs. But considering its product offerings and clients, pawpaw1941 thinks it makes for a prime takeover target.

This stock has an excellent menu of services and a growing customer base. It has recently increased its sales force and introduced a new product/service. It is selling at a relatively low price per share and this should make it a takeover target between now and January 2012 (when the general market usually gains, making IL relatively more expensive).

Add IntraLinks to your watchlist and let us know in the comments section below whether you agree that its streamlined stock price is a more appropriate valuation for some suitors.

Keep a high profile
Although these promising stocks possess equally persuasive arguments for swearing them off, it highlights why you need to look beneath the headlines and press releases to get a fuller picture of where your money is going.

Looking where others ain't is how The Motley Fool uncovered two small-cap stocks with solid government deals that are ready  to deliver multibagger returns. Check out The Motley Fool's free report "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Get access to detailed analysis of these two companies — completely free.

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 Apple, InvenSense, and Google. Motley Fool newsletter serviceshave recommended buying shares of Apple, Google, and EPIQ Systems, as well as creating a bull call spread position in Apple. 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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