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.


CAPS Rating
(out of 5)

No. of Active Picks

Est. EPS Growth Next Year

ISTA Pharmaceuticals (Nasdaq: ISTA) *** 99 2567%
Magnum Hunter Resources (NYSE: MHR) *** 53 41%
Towne Bank (Nasdaq: TOWN) *** 36 36%

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 a company before you plug it into your own portfolio.

Under the radar
With FDA approval of its once-a-day eye drops, ISTA Pharmaceuticals becomes a more attractive target for a larger pharmaceutical, as its twice-daily Xibrom treatment generated more than $81 million in sales in 2009.

Pharmaceutical companies like Allergan or even Johnson & Johnson (NYSE: JNJ) might like the treatment that will be coming to market in 2011, just in time to stave off generic competition of Xibrom. Meanwhile, Novartis (NYSE: NVS) acquired a majority stake in Alcon earlier this year and is in the midst of securing the rest of the company to gain control of its eye-care product pipeline. That might take it out of the running for the time being, though ISTA's pipeline would complement the portfolio. 

Since it recently returned to profitability, a valuation based on future earnings may make it seem pricey. But trading at just slightly higher levels than its sales and having a new, improved treatment coming to market mean ISTA's shares might seem cheap to the right buyer. That would undoubtedly sit well in CAPS, where 89% of the members who've rated the pharmaceutical think it will outperform the broad market averages.

Only you can know whether this type of investment is suited for your portfolio, but you can track it by adding it to your My Watchlist page and have all the Foolish news and analysis about it aggregated for you in one place.

Rev those engines
The Marcellus, Haynesville, Fayetteville, and other shale plays have proven to be both boon and bane to natural gas companies and their investors, since they've provided plentiful supplies, but have killed the price in return. Natural gas trades below $4 per million Btus. However, Baker Hughes finds the natural gas rotary rig count hasn't fallen by any appreciable amount over time. In fact it rose by two rigs last week.

The Eagle Ford shale formation will probably be the next up-and-coming play as everyone's starting to make deals in the space, which will likely work in Magnum Hunter Resources' favor for the short term. Magnum has the potential for more than 100 drilling locations in its Eagle Ford acreage, according to the company's website. Statoil (NYSE: STO) bought a 50% interest in Talisman Energy's liquid-rich acreage while CNOOC purchased a third of Chesapeake Energy's (NYSE: CHK) stake in the Eagle Ford.

Head over to the Magnum Hunter Resources CAPS page and let us know if you think this company will strike it rich in shale.

End of times
Community banking specialist Towne Bank is another stealth investment that's growing investor support. That could be because rather than trying to grow beyond its means, Towne Bank chooses to focus its attention close to home in Hampton Roads, Va. Small-town banking has resonated well with its customers and investors, who saw second-quarter earnings grow nearly 9%, with deposits increasing by 8%, indicating the bank is serving its customers well. It also paid out its 15th consecutive dividend.

That kind of performance is starting to attract CAPS members, but with only a few dozen of them weighing in, why not deposit your own perspective on the Towne Bank CAPS page.

Chesapeake Energy is a Motley Fool Inside Value choice. CNOOC is a Motley Fool Global Gains recommendation. Johnson & Johnson and Statoil ASA are Motley Fool Income Investor selections. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. Motley Fool Options has recommended a write covered strangle position on Seaspan. The Fool owns shares of Johnson & Johnson, Prestige Brands Holdings, 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 currently does not own a position in any stocks mentioned here. The Motley Fool has a disclosure policy.