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. 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; N/A = 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.

I'll drink to that
It's not much of a secret that the real innovation in beer is coming from the craft beer segment. Brewers like Anheuser-Busch InBev (NYSE: BUD) or Molson Coors (NYSE: TAP) that are fermenting millions of barrels of beer annually are not the vanguard of taste. That's being left to smaller brewers Samuel Adams-maker Boston Beer (NYSE: SAM) and Craft Brewers Alliance.

But you're also not going to find the big brewers crying in their beers, either. They've taken stakes in the craft segment to ensure that their top line isn't as flat as the beer. Molson has its share of craft beers, and A-B owns one-third of Craft Brewers. It also just bought from CBA the minority stake it had in Fulton Street Brewery, which produces craft beer like Honkers Ale.

The craft brew trend is only growing, notes CAPS member earlystart, and while rodman1112 says that can make it difficult to choose which craft beer to buy, it works to CBA's benefit in the end:

As the beer market become ever more saturated it will be tougher for consumers to choose which craft brew to buy...which isnt a bad thing when you have an expanding selection in your repetoire

Brew up your own thoughts on the Craft Brewers Alliance CAPS page about whether it will all come to a head.

Under the radar
If Alcoa's (NYSE: AA) predictions are right that aluminum supply and consumption will double over the next decade, it's tempting to think silicon metal producer Globe Specialty Metals is sitting pretty. But the aluminum industry accounts for just 13% of Globe's annual revenues, while the solar and chemical industries represent almost half. Spain just suspended subsidies to a large swath of solar plants operating in the country and will now support just 500 megawatts a year of new solar PV facilities, down from around 2400 megawatts that were built in 2008. Other countries are slashing subsidies too.

Globe is one of the world's largest producers of silicon metal, which is used by aluminum producers, chemical makers, and polysilicon suppliers to the solar industry. This past quarter it benefited from rising prices for silicon metal and silicon-based alloys and sees demand (and pricing) remaining strong so that it will continue to operate at full capacity. That's part of the reason it's building a new plant in Iceland that it expects will be completed by 2013.

The solar business remains the weak link for me, however, but CAPS investor SKenny89 sees Globe achieving economies of scale that will support future growth.

Growing global demand in growing markets. Among the world's largest producers of silicon metal and silicon-based specialty alloys – critical ingredients in a host of industrial and consumer products in multiple markets.

Multiple factories in both the US and Argentina, as well as one in China with a great business model looking to cut costs.

You can build a case for growth on the Globe Specialty Metals CAPS page or add it to your watchlist.

What's it worth?
With manufacturing and engineering services provider Ducommun offering to buy electronics manufacturer LaBarge for $340 million, or $19.25 per share, there might not seem much gain to be made here. But these deals are never set in stone, and the trial lawyers have lined up a few feet thick to challenge the merger. An analyst had recently thought LaBarge could be worth as much as $22 a stub, so since Ducommun didn't make that offer it's obviously a fiduciary breach by the board.

Although such leeching is commonplace, it doesn't mean someone else might not agree there's a better offer to be made. In the most recent quarter reported, LaBarge said while sales rose 11%, profits jumped 14% after excluding the transaction costs of the acquisition. That might be worth something to someone. It has lucrative defense contracts that include electronic parts for systems like the Black Hawk helicopter.

That sort of better business prospects explains why 92% of those rating LaBarge believed it would outperform the broad market averages. Add the electronics manufacturer to the Fool's free portfolio tracker then head over to the LaBarge CAPS page and let us know if you think this is a done deal.

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.