Hidden Stocks for High Returns

Although some investors pile into the momentum stocks looking to ride the wave higher, others choose to buy into those overlooked by Wall Street and Main Street, preferring to find undervalued gems to invest in. The former flash and crash when the momentum goes cold; the latter have a better shot at delivering outsized gains over the long haul.

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.

Go forth and multiply
As a royalty trust, the recently IPO'd SandRidge Mississippi Trust II is organized as an entity designed to pay out all its cash flow as dividends every quarter. As with its brethren, the SandRidge Mississippian Trust I (NYSE: SDT) and the SandRidge Permian Trust, the offspring just might have more potential than their sire, SandRidge Energy (NYSE: SD), which has a significant debt load and regularly reports negative free cash flows. Although it will still drill natural gas, the vast bulk of its production will be oil and natural gas liquids, for as its CEO has said, "Oil is our future."

Of course, like all such trusts, the Mississippian II has a defined lifespan, running until the end of 2031 at which time it will dissolve and begin liquidation. While its production totals will likely start declining long before the end, its dividend yields almost 10%, so it pays you well for your time. Its IPO came amid one of the worst downturns in the industry, but also at an excellent time to take advantage of the recovery that is bound to come. In the meantime, since it's also a liquid-heavy, investors will reap the reward of the better pricing environment oil presents.

Similarly, Chesapeake Energy has also spawned several royalty trusts of its own, allowing it to generate fistfuls of cash for its assets without diluting current shareholders with new stock or burdening itself with debt.

With more than 200 wells to its name, the Mississippian Trust is going to have plenty of assets to exploit, and everyone seems to agree it will outperform the broad market averages. Over on Motley Fool CAPS, only one member has bet against while all the All-Star members and both Wall Street analysts the community tracks are unanimous it will be able to come out ahead. Let me know in the comments section below whether you think the royalty trust will succeed or if it will become a big muddy mess.

Banking with a smile
My local bank had a sign posted in its window for the longest time touting the fact it didn't need a bailout from the government to survive. With less than two dozen branches serving the surrounding communities, it was able to maintain a conservative asset base and provide that hometown banking experience while still growing its deposit base.

Regional banks have a similar attitude, and that's allowed them to flourish where behemoths like Bank of America and Citigroup languish. Instead, you have regionals like TrustCo Bank of NY or Regions Financial (NYSE: RF) outstripping the returns of their larger money center brethren, rising 38% and 77%, respectively.

TrustCo reported second-quarter earnings the other day that saw profits jump 16%, average loans rise 6%, and average deposits increase 7%. While margins were lower, that can be blamed on the artificial low-rate environment the Federal Reserve has imposed, and since it has no intention of allowing them to rise, it won't be surprising to see margins further pressured. But banks like TrustCo remain on solid financial ground.

Wall Street analysts might be split on its prospects for beating the market, but the CAPS community is solidly behind the regional bank's efforts as 80% of those rating it see it outperforming the broad indexes. Use the comments box below to advise on whether you think TrustCo Bank Corp of NY is a stock you'd deposit in your own portfolio.

Keep a high profile
SandRidge has bet big on high oil prices, spinning out royalty trusts like the Mississippians left and right, but The Motley Fool has a new premium report on the oil and gas driller. You get full access to the key areas to keep an eye on with this stock, and equally important the three risks you cannot ignore. Included are a full year of free updates, so get your copy today!