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 Guess? to Infinera. 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.

Under the radar
How well Magellan Petroleum's switch from a traditional, smaller volume energy production company into a developer of larger-scale reserve positions remains to be seen, but its interests in some developing oil and gas projects looks promising. However, like Crimson Exploration (Nasdaq: CXPO), another small, but growing E&P outfit that was recently featured here (and whose stock is now some 18% higher), Magellan will undoubtedly be at the mercy of forces larger than itself for the time being.

Natural gas inventories continue to remain above five-year historical levels, leaving prices depressed, though this cold snap has to help. While not as debt-free as CAPS member mrcarlen would perhaps like, Magellan seems financially healthy enough to maneuver through its status change.

The handful of CAPS All-Stars rating Magellan are unanimous in their view it will continue to pump out greater returns for investors, and only one person has indicated that it may underperform the broad market averages. You can keep an eye on its progress by adding it to your watchlist.

Rev those engines
Although auto parts supplier Modine Manufacturing calls its heating and cooling systems "thermal management technology," the effect of a resurgent auto industry has meant one thing: Carmakers and their suppliers are hot investments. Modine's stock is 75% higher than it was just six months ago, while even Dana Holding and Lear (NYSE: LEA) have seen their stocks jump smartly. No longer do auto parts suppliers look like a junk heap.

As much as the auto market is playing a role in its recovery, Modine is benefiting from better sales in commercial vehicle and off-highway markets, too (that would be construction and agricultural equipment). Customers such as Caterpillar (NYSE: CAT), Deere, and Oshkosh (NYSE: OSK) are among a small group of companies that account for more than half of Modine's revenues.

Although customer concentration is always an investment risk, CAPS members believe it will continue to heat up, with 81% rating it to outperform the market. Head over to the Modine CAPS page and let us know if you think this company is just heating up or is getting ready to cool off.

End of times
Unilife markets ready-to-fill and prefilled syringes, which with built-in safety features, have attracted the attention of pharmaceutical companies such as sanofi-aventis. Sanofi paid Unilife a $12.5 million exclusivity fee for two years to make ready-to-fill syringes for a list of exclusive therapeutic drugs, and more recently entered into an arrangement with one of the country's largest medical supply cooperatives to supply 1 milliliter syringes to U.S. health-care facilities.

With the co-op focusing on the physician and long-term care market, it's giving Unilife a large portal to enter markets that consume a significant proportion of all 1mL safety syringes manufactured each year.

The one Wall Street analyst following Unilife is looking for better than average returns, as are all the CAPS All-Star members who've rated it. In fact, only two members think it will nick itself going forward, but only you can decide whether this medical device company deserves a spot in your portfolio. Add Unilife to the Fool's free portfolio tracker to keep on top of all the news and analysis about this security leader.

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.