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.

Yet the search for undiscovered jewels has informed many of our Motley Fool Hidden Gems picks, from Prestige Brands to Seaspan. Overlooked by Wall Street and Main Street, and thus undervalued, these stocks hold the best potential to deliver outsized returns.

The Motley Fool CAPS community knows a bargain when it sees one. Below, you'll find several under-the-radar stocks that brim with promise. These companies have garnered 100 or less active recommendations on CAPS, though the community thinks they still have outsized potential.

Stock

CAPS Rating
(out of 5)

No. of Active Picks

Est. EPS Growth Next 5 Year

China Ming Yang Wind Power (NYSE: MY  ) *** 49 NA
Crimson Exploration (Nasdaq: CXPO  ) ***** 61 10%
Cypress Sharpridge Investment (NYSE: CYS  ) ***** 70 NA

Source: Motley Fool CAPS; NA = not available.

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.

Under the radar
The Chinese market for wind power has changed dramatically over the years as demand for energy has grown, creating opportunities particularly for local, domestic suppliers to gain large swaths of market share. Western wind turbine makers have seen their share of the Chinese market drop from 71% in 2005 to just 14% last year, giving China-based A-Power Energy Generation Systems (Nasdaq: APWR  ) opportunities to expand.

With the largest players, like Sinovel, Xinjiang Goldwind Science & Technology, and Dongfang, still dominating the market, surging demand allows smaller companies like China Ming Yang Wind Power Group to establish a foothold.

CAPS member WallytheWalrus is impressed that China Ming Yang has maintained profitability while implementing its expansion plans, while All-Star rijoker sees that as a sign it will be able to continue on the path for great growth in the future:

Today's earnings release was a very positive sign for this company and will have some good growth for the next year or so. I will continue to watch this as the growth continues and we are now three quarters of profits. I am not usually an investor in solar or wind energy, but feel that wind (Ming Yang) will continue to do good and grow in China.

Rev those engines
The coming cold weather season ought to warm the hearts of investors in natural gas plays like Crimson Exploration, EOG Resources, and even Chesapeake Energy (NYSE: CHK  ) , but with persistently high inventories winter is likely to be cold comfort to investors.

Even though inventory levels surprised analysts by dropping by 6 billion cubic feet, causing a spike in the share price of U.S. Natural Gas (NYSE: UNG  ) , there is still an abundance of supply and producers are producing even more. While the immediate future might not be amenable to producers, CAPS member Arize says the long-term need for natural gas will help create profit for investors:

New methods of extracting natural gas and oil from shale are making instant millionaires out of ordinary citizens. If you aren't so lucky as to own a farm sitting on top of energy deposits in Pennsylvania or Texas, you can still get in on the action by purchasing shares of Crimson Exploration (CXPO). This little-noticed company owns big deposits of gas and oil in Texas and Louisiana.

Head over to the Crimson Exploration CAPS page and let us know if you think this company will be able to pull additional growth out of a hat.

End of times
With REITs such as Cypress Sharpridge Investment and American Capital Agency (Nasdaq: AGNC  ) sporting dividend yields near 20%, investors would be right if they heeded the warnings about chasing yield. Where there are high returns there is also high risk.

Yet the Fed has let it be known that at least for the near future, investors can ignore the usual common sense advice because it will be pursuing its quantitative easing policies that will let these investments continue their borrow-and-lend practices. The government will be helping investors earn outsized rewards even if it risks ruining things for everyone else.

No doubt that helps explain why 96% of the CAPS members rating Cypress believe it will continue to churn out market-beating returns. But only you can decide whether such high-yield investments deserve a spot in your portfolio, so add Cypress to the Fool's free portfolio tracker to keep on top of all the news and analysis about this real estate investment trust.

Keep a high profile
We've had three stocks today that hold a lot of promise that investors want to get behind, but possess equally persuasive arguments for swearing them off. It's why you need to look beneath the headlines and press releases to get a fuller picture of where your money is going.

Also check into Motley Fool CAPS and tell us whether these low-profile stocks are on their way to higher returns.

Chesapeake Energy is a Motley Fool Inside Value pick. Motley Fool Options has recommended a write covered strangle position on Seaspan. The Fool owns shares of Prestige Brands, and Seaspan. 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.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in the article. You can see his holdings here. The Motley Fool has a disclosure policy.


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