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.

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 fewer active recommendations on CAPS, though the community thinks they still have outsized potential.

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.

Blinded by the light
With the advent of the tablet computer and mobile computing, particularly the iPad and smartphones, we've heard a lot about the death of the PC. Yet as the market researchers at IDC explain, it's not that these new platforms are replacing personal computers, instead they are expanding the market. PC sales are still growing, it's just that these other platforms are growing faster.

Chip maker Intel has put the lie to the notion that the PC era is dead and buried. It says analysts are going to have to revise upward their dour forecasts because, based on its own internal numbers, it predicts double-digit PC growth this year with more than 400 million units shipping. Yet Intel is also positioning itself to capture a large percentage of emerging mobile platforms by transitioning NAND flash memory to a 20-nanometer footprint.

IM Flash Technologies, a joint venture between Intel and Micron Technology (NYSE: MU), is the first to make this new smaller wafer, which will allow for greater storage in smartphones and tablets, while taking less space.

Nova Measuring Instruments makes the integrated process control metrology systems that allow for the manufacture of such chips with precise tolerances to improve efficiency and yields. The market is very competitive for the technology, and Nanometrics (Nasdaq: NANO) is a key rival for business, but 97% of the CAPS members rating Nova think it will be able to surmount the challenges posed by the competition. You can chip in your own thoughts on its future on the Nova Measuring Instruments CAPS page.

Under the radar
Following the merger of Mirant and RRI Energy, the resulting new company, GenOn Energy, became one of the largest independent power producers in the country. The industry, in fact, has become a hotbed of consolidation, as lower energy prices have eaten into profits, prompting utilities to combine their operations. Exelon (NYSE: EXC) is buying Constellation Energy for $8 billion and Duke Energy (NYSE: DUK) is paying almost $14 billion for Progress Energy. GenOn has only a $3 billion market cap.

GenOn, though it reported losses that quadrupled in the latest quarter, believes it's now in a position to generate profits because of the scale the merger achieved. Analysts have previously expressed an opposing view, believing it was a position of weakness on both parts that created the new company.

CAPS member anacostia is hopeful that with the utility business remaining an industry with high barriers to entry, GenOn will get its house in order: "Asset value. It is expensive to build new power plants, so as demand rises, utilization of existing plants will increase first."

You can power the GenOn Energy CAPS page with your thoughts and follow its progress by adding the stock to your watchlist.

Divine intervention
Canadian gold miner Richmont Mines has benefited from the new gold rush that's pushing gold prices to record highs. Its own stock is at all-time highs, too, having doubled in value over the past three months. And little wonder. Its recent fourth-quarter earnings report showed a better-than-14% increase in gold sales with predictions for as much as a 25% increase in production in 2011 from its two active mines. While cash production costs remain high ($808 per ounce, up from $737 per ounce), in its home currency, they actually decreased.

The CAPS community is virtually unanimous in its opinion that Richmont Mines will hit the mother lode and continue beating the broad market averages. You can see if it's able to mine the current environment for higher growth by adding Richmont to your watchlist then head over to the Richmont Mines CAPS page and leave a nugget of insight for others to consider.

Keep a high profile
Whenever you're eyeing a stock, you need to look beyond 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.