Hidden Stocks for High Returns

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

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 less 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 Yr.

Est. EPS Growth This Yr.

Triangle Petroleum (Nasdaq: TPLM  ) ***** 88 0% 689%
Velti (Nasdaq: VELT  ) **** 50 0% 104%

Source: Motley Fool CAPS.

Naturally, we want you to look a bit closer at these stocks before buying. Investors may be 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.

Boom!
If you're going to look for oil and gas, there's no better place than the Bakken shale and Three Forks region of the Williston Basin. The boom under way is unprecedented, as Continental Resources (NYSE: CLR  ) , Kodiak Oil & Gas (NYSE: KOG  ) , and a host of other drillers dig deeper to get at the riches that the region holds. While no one knows how much larger it can grow, it's generally agreed that the end is nowhere in sight.

That's what makes Triangle Petroleum's entrance into the Bakken so interesting. It might be small compared to its mighty brethren, and it might be somewhat late to the game, but even at this stage, it can handsomely profit.

Analysts are expecting the Bakken shale region to continue being the key to domestic production, with regulators in North Dakota calling for it to double to more than a billion barrels a day by 2015. Continental's Chairman and CEO Harold Hamm says he thinks the estimates are low.

The Fool's Sean Williams says Triangle has four rigs in play right now, but expects to more than triple that number by the end of next January. The potential that the upstart holds caused Sean to recently name Triangle his "CAPScall of the Week." I concur, and have rated the oil and gas play to outperform the market indexes as well, joining with CAPS member talmidchacham, who says that Triangle is "expanding rapidly in the Bakken region, [has] undergone a significant change of management and [has] no debt with a lot of extra cash."

Let me know in the comments section below, or on the Triangle Petroleum CAPS page, whether you think it's something of a round peg in a square hole; then add the stock to the Fool's customized portfolio tracking service to receive updates on its efforts to be rockin' the Bakken.

Going mobile
We're all well aware of the wasteland that has become the print advertising market. Even if Warren Buffett is buying up reams of newspapers, it doesn't change the trend that news is now consumed online and on the go.

According to the market researchers at inneractive, in 2011 ad clicks jumped more than 700%, while ad revenues surged 522%. Perhaps not unsurprisingly, North America saw the greatest growth, with a near-1,000% increase in ad requests, followed by Europe at 712%. It seems that even though the eurozone is poised on the edge of collapse, consumers still want to spend money with advertisers. Moreover, Google (Nasdaq: GOOG  ) has reported that the number of paid ad clicks on its Web pages rose 39% in the first quarter, but its cost-per-click fell 12%, because consumers accessed the service via mobile devices.

These trends are good news for mobile ad agency Velti, which has had a rough go of it -- its stock lost half its value over the last 12 months. The market's reaction to its earnings news is a bit perplexing, because its own revenues grew 51% in the first quarter. It did, however, generate a $0.02 per-share loss. The size of the average mobile transaction on the Velti platform rose 9% in May to $3.22, compared with three months earlier.

The company raised its full year guidance, as well, so it's hard to see why the shares have sold off. Sure, cash balances dropped, and the time it took to collect receivables grew, but analysts view these developments as "growing pains."

Maybe it's because, as CAPS member dppxs says, Velti is domiciled in Greece, and investors were exceptionally wary of investing. Worse, he says, it has "huge OPEX, [is] over-staffed and with minimal profitability margins." He's rated it to underperform the market indexes on CAPS. You can add Velti to your Watchlist, and let us know in the comments section below whether you think there's a profitable future ahead for a company in the midst of some wild growth trends.

Keep a high profile
Facebook's own advertising model has come under harsh scrutiny lately, as General Motors says it's dropping the platform from its ad book. But the Motley Fool says, "Forget Facebook -- Here's the Tech IPO You Should Be Buying," and this company has a number of hidden weapons that keep it from falling into Facebook's advertising trap. Order your copy today -- it's free!

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


Read/Post Comments (3) | Recommend This Article (2)

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 July 06, 2012, at 11:36 PM, MrSinnister wrote:

    When will Discovery Labs (DSCO) finally get some love ? I mean they have 2 FDA approved products that go into distribution in the 4Q, with the FDA approval coming in March. They only have 43 million outstanding shares, with a current market cap of 125M which nearly multiplies with every 10 cent increase. They are going to distribute a drug for Respiratory Distress Syndrome for infants in the US and European markets, and they have TREMENDOUS upside, already up 60 percent on the year. Add to that two more drugs awaiting approval, Aeroserf, that is in a collaboration with Batelle to get streamlined and fine-tuned and Surfaxin LS, a liquid version of their already FDA-approved drug Surfaxin. How this stock stays in the 2 range is amazingly shortsighted.

    Value of Surf LS + Afectair: 275million

    Shares O/S: 43mil

    Tell me why we can't see $40+/share with DSCO. Note that my sell target is below this, but I expect the stock to soar once it gains momentum. Imagine that liquid surfaxin penetrates the market quickly and gets great reviews by practicing docs (which it should). Surf LS will be even better. And Aerosurf even better after that.

    Facts:

    1. one approved device

    2. one approved drug

    3. $40 million in cash

    4. no debts

    5. no preferred stocks

    6. no impending warrants (outside of the 5yr 5M at 2.80)

    8. exclusive rights

    9. excellent pipeline

    10. Newly partnered (Batelle for R&D)

    11. MAA approval soon

    12. New device new drug launch soon

    13. Mkt Cap 128 million ???

    At 3 times sales, this is already $400 million firm, and that is $10 PPS. DSCO === Hidden Gem.

  • Report this Comment On July 07, 2012, at 1:32 AM, lanceim59 wrote:

    An FDA approved product is great IF the product sells. I think once DSCO starts showing some profits, then it will take off.

  • Report this Comment On July 07, 2012, at 3:11 AM, MrSinnister wrote:

    It's a guarantee that it will sell, but it's simply amazing that the pps went back to its pre-approval level and pretty much stayed there for 3 months. The short interest is at 5 days to cover, but I'm sure that the naked interest was far greater, capitalizing on the secondary, which still didn't make the outstanding shares even close to the over 100M average of its peers. Everything around the manipulation of this stock stinks. I think an article should be written about that.

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