Thank goodness. It's finally over.
Earnings season, I mean. Round 3 of the year's periodic torrent of numbers dwindles to a trickle this month. And as always happens, it leaves in its wake a pile of silt -- and a handful of forgotten treasures that the market forgot. Here at Motley Fool Hidden Gems, it's our task to help you sort through the market's muck and mire. There's little time for it -- earnings season Round 4 is just around the corner -- so let's get to digging.
Playing with rocks
Every month, our team of certified equities gemologists digs through literally thousands of small-cap companies in a quest to find you the very best investments in which to stake your claim. We examine the companies' revenues, their reported GAAP earnings, their actual earnings as accrue to owners (meaning you and me, not the suits in the corner office). We interview management, gauge the strength of competitors, calculate stock dilution.
In short, before any company makes it in our portfolio, we grade it in any number of ways to ensure that it has the absolute best chance of becoming an embarrassingly profitable investment for our members. Sure, sometimes we make mistakes -- in fact, fully one out of every three of our recommendations has declined since we recommended it. But overall, the effort has paid off for us over the past few years, helping our portfolio to rise 34% on average against a 13% gain in the S&P 500.
Maybe you're thinking: "That's great for the guys who got in at the beginning. But what about the rest of us? If the stocks have gone up already, it must be too late to buy now, right?"
Not at all.
Let's begin with the obvious. Sure, most of our past picks have already risen in value. But every month, co-analysts Tom Gardner and Bill Mann dig up two new prospects for your investing pleasure. And three runner-up Watch List stocks. And a handful of micro-cap ideas. So, to invoke the old cliche, as well as our past picks have done, "there's plenty more where that came from."
But today, I'm not talking about our new ideas -- I'm talking about our old ideas. You see, the overarching concept of Hidden Gems is to help members identify and buy into undervalued and unknown companies. But expecting a stock to be unloved right after it's recommended is like expecting the guests to ignore a debutante on the day of her ball.
It's not always easy to buy a Hidden Gem at an attractive price on recommendation day, for example. That's a fact of life, and common to most investment newsletters. It's also the reason I spend more of my time following our old picks than our new ones. You'd be surprised how quickly yesterday's stock darling can become tomorrow's re-Hidden Gem. Which is just fine by me. Just like in an eBay auction at three in the morning, I'm happiest bidding when there's no one else around. Because that's the time to find your best bargains.
Get to the point already -- what do you like?
Your wish is my command. To date, Hidden Gems has made 60 recommendations. Of those, 12 were "re-recommendations," two have been acquired and delisted, and seven companies proved bad calls and were "sold." Which leaves 39 unique recommendations out there for Fools seeking potentially great investments that the market has tossed aside. From among these, here are three that I think deserve a second look (and this is just one Fool's opinion, so feel free to join us on the discussion boards and tell me why I'm wrong).
At The Motley Fool, we're usually not fond of debt. But in the case of Portfolio Recovery Associates
And there you have it. Three classic recommendations that no one on Wall Street is watching. Same high quality as our new recommendations, and still priced to buy. Get 'em before they're hot (again).
In closing, I should mention that my research of past Hidden Gems picks revealed one stock that I believe is even better positioned to rise in value than any of the three stocks named above. Because Hidden Gems is a paid service, and this recommendation is relatively recent, I'm unable to publish its name here today. But you can still see what it is -- for free -- with just a little effort. Click here to sign up now for a free trial. Once you're in, visit our archives and check out Tom Gardner's November 2005 pick -- I think it's a real winner.