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 Fossil to Under Armour. 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: Zacks.com and 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
With sales of BioTime's blood plasma volume expander Hextend falling 39% last quarter, its move into stem cell research was nothing if not timely. Come Oct. 1, the biotech will begin selling 10 new human embryonic progenitor cell (hEPC) lines for research use. Since selling into the research-only market typically doesn't require Food and Drug Administration approval, there may be more avenues for growth for BioTime. Its hEPC lines are intermediate cells somewhere in the developmental process timeline between embryonic stem cells and fully differentiated cells.

With three-quarters of BioTime's royalty revenue derived from Hospira, it's also hoping that Millipore, a supplier of life sciences lab equipment that was the subject of a bidding battle earlier this year between Thermo Fisher Scientific and the eventual winner Merck KGaA, will be able to pick up a lot of the slack. Millipore recently began marketing six of BioTime's hEPC lines.

Highly rated CAPS All-Star member DarthMaul09 thinks risky plays like this won't be popular with investors if markets get choppy and they fly once again to the safety of blue chip stocks.

With the recent stock market gains many investors have been buying more speculative stocks, but like the sell off we saw in August and June, these riskier investment will probably not hold up well when safety and value becomes fashionable again.

Rev those engines
When it comes to gold exploration, you already know the names of the big industry players like Goldcorp and Barrick Gold (NYSE: ABX), but there are lots of tiny exploration firms that pass under the notice of most investors. Canadian gold miner Claude Resources would be one of those, which in the second quarter produced 11,900 ounces of gold. Even small South African gold miner DRDGOLD (Nasdaq: DROOY) produced more than 61,600 ounces. By comparison, Goldcorp expects to produce that amount in a little over three weeks time at just one of its mines.

Yet for those CAPS members who have rated Claude Resources, all but one is bullish, and mitleg sees the opportunity for continued outperformance. With gold prices at $1,300 an ounce, each of those nuggets it extracts becomes more valuable.

End of times
NeoStem is another stem cell researcher that has been affected by the tussle between the Obama administration's decision on human embryonic stem cell funding and a judge's injunction, even though it does use such cells in its own research. Instead, NeoStem uses a proprietary population of adult stem cells known as very small embryonic-like stem cells, or VSEL.

Since stem cell research tends to be lumped together right now, you find stocks like NeoStem, StemCells (Nasdaq: STEM), and Osiris Therapeutics moving in sympathy with one another. Yet over the past year, where StemCells' stock has fallen in value by half, Cytori Therapeutics (Nasdaq: CYTX) is up more than 30%. The rhythms might be the same, but the magnitude is not.

It's a field that appears to offer little near-term catalysts but great long-term potential, and headline-driven drops in price could provide opportunities to pick up shares at a discount for investors wanting to get in to the space. With tiny valuations, they're risky and volatile but could pay off down the road.

You can be the first CAPS member to provide your thoughts on the NeoStem CAPS page, while also adding the biotech to your My Watchlist page and having all the Foolish news and analysis aggregated for you in one place.

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.