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 two 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; NC = not calculable.

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.

On the dole
Despite strong earnings growth last year, Dole Food's stock is more like a barrel of rotten apples as shares sit 35% below where they were a year ago. But it's not alone, as the whole fresh fruit industry seems spoiled, with Chiquita Brands (NYSE: CQB) down 42% over the last 12 months and even Fresh Del Monte Produce (NYSE: FDP) is off 5%.

Peeling back results, though, we find the fruit market has benefited from a stronger banana market in North America. Both Dole and Chiquita saw sales improve as volumes grew from prior periods, but interestingly Fresh Del Monte (not to be confused with privately held Del Monte Foods) actually saw banana sales and profits slip. I'll be a monkey's uncle if I can figure out why it's the one performing best.

Trading at just six times next years earnings, I've marked Dole Food on CAPS to outperform the broad indexes. Let us know in the comments section below or on the Dole Food CAPS page if you agree, then add it to your watchlist to be notified if it ends up slipping on a banana peel.

Picture this
While essentially a gas station and convenience store operator, Getty Realty is structured as a REIT, so it should come with advantageous and favorable tax advantages. However, Getty Petroleum Marketing declared bankruptcy last year, and the downfall is still giving it fits.

Last month Getty Realty had to get the bankruptcy court to force Marketing to pay its rent, and though that means the REIT may get as $9 million some time this month, it acknowledges it's probably on the hook for the real estate taxes that Marketing was supposed to pay, and it's going to have to increase some rent reserves. There are also environmental issues that it's probably going to be responsible for as well. Not a pretty picture.

The problem was that Marketing accounted for more than three quarters of the REIT's revenues, and most of those were tied up with Russian oil giant Lukoil. Things started to go awry when Lukoil transferred its ownership stake to Cambridge Petroleum, which then wanted to reduce the number of stations covered by the master lease between Getty Realty and Marketing. The REIT always figured Lukoil would ensure Marketing met its obligations; it had no such assurances with Cambridge. As events turned out, there was good reason for concern.

Realty Income (NYSE: O) is another REIT bedeviled by the bankruptcy of one of its tenants. Friendly Ice Cream is emerging from bankruptcy and wants to shed a number of stores covered by their agreement, representing $1.8 million in foregone rents.

Despite its troubles, all but one of the 26 CAPS All-Stars rating Getty Realty still thinks it will outperform the market averages. Add the REIT to the Fool's free portfolio tracker and let us know in the comments section below whether you think it will be able to smooth over the bankruptcy mess.

Keep a high profile
Although these promising stocks possess equally persuasive arguments for swearing them off, it highlights why you need to look beneath the headlines and press releases to get a fuller picture of where your money is going.

Looking where others ain't is how The Motley Fool uncovered two small-cap stocks with solid government deals that are ready to deliver multibagger returns. Check out The Motley Fool's free report "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Get access to detailed analysis of these two companies -- it's completely free.