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 Rofin-Sinar Technologies to OYO Geospace. 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: 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 recently concluded Consumer Electronics Show has been hailed as one of the best in years, unveiling new technological advances in gadgetry and mobile computing, with tablet computers and smartphones seeming to capture the most attention.

While many investors might pile into the manufacturers of those products, a smarter play might involve the chipmakers, since their products will be driving these devices. You didn't even need Intel's (Nasdaq: INTC) blowout first-quarter guidance last night to tell you that chipmakers will be hot.

Yet the even smarter investors might want to dive deeper than that, and look for the companies that support the chipmakers. Nova Measuring Instruments, for example, makes wafer measurement products used by the mobile computing industry. It recently received a $17 million equipment order from Taiwan Semiconductor Manufacturing (NYSE: TSM) and a separate $10 million order from an unidentified "major foundry."

Its stock has nearly doubled over the past six months, but Nova Measuring Instruments still expects revenue to grow by 60% over the next few years, as it also expands into the 3-D chip market. The company remains relatively obscure on and off Wall Street, but among those who have rated it on CAPS, 95% believe it's equipped to beat the broad market averages. Tell us what you think on the Nova Measuring Instruments CAPS page.

Good for what ails you
Its wireless technology probably wouldn't get tongues wagging at CES, but Telular's alarm and event monitoring services still aim to capitalize on the growth in smartphones. By focusing its business on consumers who live in cell phone-only households, Telular is growing sales and aiming for consistent profitability.

To pursue that trend, it decided last quarter to reverse the valuation allowances of previous net operating losses. This signifies that the company will likely sustain profitability going forward, even though the competitive landscape remains challenging. Telular competes against big companies such as Honeywell (NYSE: HON), and although LM Ericsson rivals it for the fixed-cellular terminal business, it also licenses Telular's technology. Even when it loses, Telular wins.

CAPS member uoptrader thinks Telular has found a unique niche it can exploit; the company estimates that it owns 20% to 30% of the cellular alarm communicator market. Be sure to add it into the Fool's free portfolio tracker, then head over to the Telular CAPS page and let us know what you think.

In hot pursuit
Chinese wastewater treatment specialist Tri-Tech Holdings felt the effects of allegations of accounting irregularities at several small-cap stocks, including some in its own industry.

RINO International ultimately got delisted, while Duoyuan Global Water (NYSE: DGW) took a hit after affiliate Duoyuan Printing fired its accountant. Subsequently, Duoyan Printing's CEO, its chief financial officer resigned, and the chairman of its audit committee also resigned, along with three other members of the board.

Now that there's been some time to filter the situation, Tri-Tech's shares have rebounded, jumping 30% over the past month. We suspected that Tri-Tech Holdings was the safer bet, and CAPS member wonkca concurs, saying it's still in the early innings of a long game:

great international investment to play China water resource and environment sector. The company is in the right industry in China to take advantage of on going problem. The company is in infant stage of growth. The revenue, EPS, and stock price should accelerate when there is consistent [quarter] to [quarter] increases.

Add the company to your watchlist to keep on top of all the news and analysis about it.

Keep a high profile
Today's three stocks hold a lot of promise that investors want to get behind, but each possesses equally persuasive reasons for Fools to steer clear. That's why you need to look beneath the headlines and press releases to get a clearer picture of where your money is going.

Once you've done so, check into Motley Fool CAPS, and tell us whether these low-profile stocks are on their way to higher returns.