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; 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.

No anemic opportunity here
After recovering from last year's failure of an experimental drug to meet one of the main goals in a midstage study, Rockwell Medical Technologies has announced a series of developments that have pushed its stock to new record highs. Shares are up more than 170% over the past 12 months and are 90% higher this year alone, which might be one thing short-sellers are looking at.

The ball got rolling as it announced it was beginning phase 3 enrollments for its second pivotal clinical study, called CRUISE-2, which is designed to study results from its water-soluble iron called SFP, which treats iron deficiency anemia. The worldwide market for anemia drugs for kidney patients is expected to grow to $8.8 billion by 2015 as more companies target the market that had once been the province of Epogen, Amgen's (Nasdaq: AMGN) breakthrough anemia drug.

Rockwell followed up the clinical trial news with an earnings report, and then said it had been granted a patent for the packaging and method of use for SFP. Earlier this year, Rockwell signed a long-term supply agreement with its biggest customer, kidney-care service provider DaVita.

Although Rockwell is flying under the radar of much of the market, all but one of the CAPS All-Stars rating the anemia specialist think it will outperform the broad market averages. Don't be deficient. Add your own thoughts on the Rockwell Medical Technologies CAPS page.

Under the radar
Like LASIK surgery, STAAR Surgical's Visian Implantable Collamer Lens treatment corrects myopia, but unlike the more well-known treatment, it is reversible. It's also gaining greater acceptance around the globe, having been approved for use in Japan for over a year now and recently receiving the European CE Mark, which means it's met consumer safety, health, or environmental requirements. Despite having been approved for sale in the U.S. in 2005 to treat myopia, 73% of STAAR's total sales come from outside the U.S.

Corrective eye surgery remains a tight, competitive market and STAAR's biggest rivals include Alcon, Abbott Laboratories (NYSE: ABT), and Bausch & Lomb.

But Wall Street remains unanimous in its opinion that STAAR will outperform the market indexes. I agree that with a broadening market opportunity for the Visian lens there should be greater profits down the road, so I headed over to the STAAR Surgical CAPS page and indicated my preference. You can build a case for growth there, too, or just eyeball it by adding it to your watchlist.

Get a spine!
With FDA approval for its spinal implant system, and "bone spackle" maker Orthovita's (Nasdaq: VITA) agreeing to be bought out by Stryker (NYSE: SYK) for $316 million -- giving it a valuation around seven times its book value -- TranS1 might make an attractive candidate for someone, too, as it's trading for just over two times its book value.

Importantly for the medical device maker, earlier this year it said Humana was changing its reimbursement policy for spinal surgery to include coverage for medically necessary interbody fusion procedures, a development that attracts investors like CAPS member Turtlebale: "very low expectations in spine device market; TSON device starting to get picked up by managed care"

Add the spinal implant system manufacturer to the Fool's free portfolio tracker then head over to the TranS1 CAPS page and let us know if you think this will give the stock some backbone.