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 Dynamic Materials 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.

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
It's no secret the real estate market in China has been growing like gangbusters, fueled in part by government policies that encouraged speculation in housing. Developers like Xinyuan Real Estate (NYSE: XIN) surged as a result of the growth and upstarts like China Real Estate Info quickly became a leading Internet portal for the industry. China Ceramics, a manufacturer of ceramic tiles used in the construction industry for cladding the exterior of homes as well as floors in tile, also benefited from these subsidies.

Yet as the Chinese government now attempts to put the toothpaste of torrid expansion back in the tube of containment, we're finding they still have a housing market approaching the bubble levels of the U.S. in 2005 and Japan in the 1970's. And we all know how that worked out. The government just raised interest rates for the second time since October, and also increased to 60% the down payment required when buying a second home. The good times could be coming to a screeching halt soon.

Despite China Ceramics being a Chinese small-cap stock, with all the attendant concern that automatically lends to an investment these days, highly rated CAPS All-Star member bradford86 finds the tile maker to have a good management team and a verifiable auditor to ease any concerns:

great guys involved here, i think it's grant and thorton is the auditor. around $3 in eps. dirty cheap, growth of over 30%.

China Ceramics is flying under the radar now, but you can plug into this growing company by adding it to your watchlist and have all the Foolish news and analysis about the stock aggregated for you in one place.

Good for what ails you
Although Toyota (NYSE: TM) was just absolved of having electronic problems which led to a series of high profile recalls for the automaker last year -- one of the top true causes is likely operator error -- Ford (NYSE: F) just had to recall 363,000 of its recently launched Explorer SUVs because of malfunctioning seats made by Lear. The U.S. automaker is enjoying a restoration of respect in part due to the quality of its vehicles and malfunctions and recalls are a smirch on their record that neither Ford nor Lear need.

Lear has also been on the road to recovery following a highly publicized bankruptcy. As the auto industry comes off life support, the parts supplier will find its own financial situation continually improving. In fact, its seating segment saw revenues jump 13% this year. Recalls won't do anything to help them out.

With all but one All-Star member looking for Lear to beat the market, its apparent they believe it won't take this problem lying down. Be sure to add Lear into the Fool's free portfolio tracker, then sit down at the Lear CAPS page and give us your thoughts on the auto parts supplier's future.

In hot pursuit
With the world having run out of IPv4 Internet addresses, Procera Networks is joining Limelight Networks (Nasdaq: LLNW) and other gateways in advancing to the next generation of protocols called IPv6, which will offer trillions of addresses and ought to last us a good long time. Procera's network policy enforcement rules enable carriers and service provider to get a better understanding of their traffic at a granular user level.

Procera had to resort to a 1-to-10 reverse split to get its stock up out of penny stock land, a move no doubt designed to better reflect the Tier 1 and Tier 2 customers it's been winning. With client wins here at home and abroad, CAPS member venturacc expects Procera to connect to more profits:

At long last this company may be breaking out of its long downward spiral. Received initial order from largest ever customer (potentially) last summer. Just signed up major European cell phone co. along with other new sources of business should give this tech best of breed the revenues needed to push fully into the black this year. Then off to the races (like ALLT).

Tell us on the Procera Networks CAPS page whether you think it will be able to dial up the profits it needs to stay out of the penny stock wastelands.

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.