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 Blackboard to TransDigm. 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.

Source: Yahoo! Financial, 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.

Under the radar
It may be that as cloud computing becomes more of a reality, Internet Capital Group will have found its niche. What started off as one of the poster children for the dot-com, sock puppet boom, has morphed into a savvier investor in Internet services and software businesses. It changed from having a broad portfolio of B2B businesses, to one where it takes a majority-voting stake in a relatively smaller number of operating companies. Today it has 13 companies that sell software as a service, Internet marketing firms, and companies that use technology to provide outsourced services.

That's going to put it on a collision course with companies like Salesforce.com (NYSE: CRM), Oracle's Sun Microsystems, and even Google (Nasdaq: GOOG), but at just five times earnings it is priced for the risk that represents. CAPS member JimVanMeerten finds the new business structure more to his liking.

The capital structure is innovative. They own a major investing interests in 13 different B2B e-commerce companies then help them through both funding and management assistance. A little bit venture capital-a little bit holding company. I like this.

Only you can know whether that's the type of business suited for your portfolio, but you can ad it to your My Watchlist page and having all the Foolish news and analysis of the stock aggregated for you in one place.

Rev those engines
With all the M&A activity booming today, it wouldn't be too surprising to see Australian bio-nanotech pSivida get gobbled up by Pfizer, it's largest shareholder owning approximately 10% of the company. The FDA recently approved a priority review of its NDA for Iluvien, a sustained release treatment for DME, diabetic macular edema, a leading cause of blindness in people under 65. If it gets approved, not only would pSivida get a $25 million milestone payment, but it would also be entitled to receive 20% of the profits on its sales from partner Alimera Sciences (Nasdaq: ALIM). Those could come as early as the first quarter of next year.

With 91% of the small handful of CAPS members rating pSivida to outperform the market, it looks like at least some investors have their eye on the potential this stock has. Think this is the time to get in on a stock that sits well below the radar of Wall Street and Main Street? Let us know your thoughts on the pSivida CAPS page today.

End of times
ZIOPHARM Oncology suffered two hits to its stock earlier this year, first when its shares dropped before its presentation at the American Society of Clinical Oncology (ASCO) annual meeting, and then a few weeks later when FDA said its application for special purpose assessment of an experimental cancer treatment. It didn't matter the agency said it could still go forward without the SPA; the market cut its stock by nearly a third.

But it got much better news last month when the FDA granted darinaparsin orphan drug status. It is an initial treatment for peripheral T-cell lymphoma, a particularly invidious form of white blood cell cancer. ZIOPHARM will begin phase 1 testing with chemo, and if successful will move onto phase 3 testing next year. Allos Therapeutics (Nasdaq: ALTH) has the only drug currently approved for PTCL, but it's for patients whose disease had stopped responding to chemotherapy.

ZIOPHARM is another biotech flying below everyone's radar, but among those who have rated it on CAPS, including All-Stars and the two Wall Street analysts tracking it, they unanimously think it will outperform the broad market averages.

Tell us in the comments section below whether you think ZIOPHARM Oncology will make it over the first hurdle.

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 more full 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.