Hidden Stocks for High Returns

Although some investors pile into the momentum stocks looking to ride the wave higher, others choose to buy into those overlooked by Wall Street and Main Street, hoping to find undervalued gems. The former flash and crash when the momentum goes cold; the latter have a better shot at delivering outsized gains over the long haul.

And 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, but the community thinks they still have outsized potential.

Stock

CAPS Rating (out of 5)

No. of Active Picks

EPS Growth Last Year

Est. EPS Growth This Year

SandRidge Permian Trust (NYSE: PER  ) ***** 74 130% 108%
Sunesis Pharmaceuticals (Nasdaq: SNSS  ) **** 76 (31%) 8%

Source: 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 portfolio.

Feeling the energy
Despite record warm temperatures this month and the first storage injection of 2012, spot natural gas prices rose slightly last week to $2.21 per MMBTu. Rig counts continued to fall, which ought to help stabilize the markets going forward, but at one point during the week prices actually dipped below $2 per MMBTu, indicating there's still a lot of weakness present. Since then, futures prices have moved back down near 10-year lows.

On the other hand, oil rigs in action climbed once again as oil prices remained above $100 a barrel, with traders weighing some hopeful economic data against saber-rattling in the Middle East that could lead to supplies getting cut off.

Against that backdrop, SandRidge Permian Trust, last year's spinoff from SandRidge Energy (NYSE: SD  ) , has become one of the better, more interesting plays in the industry -- and certainly more so than its former parent, which may have become too aggressive for its own good.

As a royalty trust, the Permian Trust is organized as an entity designed to pay out all its cash flow as dividends every quarter. As with its brethren, the SandRidge Mississippian Trust I (NYSE: SDT  ) and the soon-to-go-public Mississippian Trust II, the offspring have more potential than their progenitors. Of course, like all such trusts, they have a specific lifespan (the Permian Trust runs until 2031), and production totals will likely start to decline long before its end. However, with yields around 10%, the trusts are paying you well.

That could be why Wall Street and the CAPS community, All-Stars included, unanimously agree we can expect to see SandRidge Permian Trust outperform the broad market averages. Let us know in the comments section below or on the SandRidge Permian Trust CAPS page if you'd trust your money to the investment, and then add it to your watchlist to see how it plays out.

Fighting the good fight
As Sunesis Pharmaceuticals rolls forward with its experimental leukemia drug, vosaroxin, anticipation is building for a positive outcome. Last month the U.S. Patent and Trademark Office issued the biotech a "Notice of Allowance" related to compositions used in vosaroxin that would provide exclusivity for Sunesis till 2030.

As perhaps the most advanced and promising therapy in development for acute myeloid leukemia, it's putting a lot of its faith -- not to mention money and time -- into vosaroxin's success, including the enrollment of patients in its phase 3 VALOR trial, which should provide a window into the probabilities for continuing expansion later this year. But it also has collaborative agreements with Millennium Pharmaceuticals and Biogen Idec (Nasdaq: BIIB  ) and a good pipeline to build on, so it's no surprise to see significant support for Sunesis to pay off.

CAPS member theMANzalone thinks next year will be the year for the biotech to get its legs, but you can add Sunesis to your Watchlist and let us know in the comments section below whether you think vosaroxin will be the wonder drug it's heralded as or, like Seattle Genetics' leukemia treatment lintuzumab, suffer a failure of the therapy.

Keep a high profile
Although there are equally persuasive arguments for swearing off each of these promising stocks, 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: 2 Small Caps the Government Won't Let Go Broke." Get access to detailed analysis of these two companies -- it's 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 has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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