Low-Profile 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 Atheros Communications to Portfolio Recovery Associates. 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 100 or fewer active recommendations on CAPS, despite having potential to grow their revenue in the double digits next year.

Source: Yahoo! Finance, Motley Fool CAPS.

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
Making the leap to a full-fledged, thriving biopharmaceutical is never an easy task, but CombinatoRx looks like it's poised to do just that. Irish health-care company Covidien (NYSE: COV) brought to market CombinatoRx's pain management drug Exalgo after receiving approval from the Food and Drug Administration in March. After CombinatoRx acquired Neuromed last year, it's ready to go on with promoting the rest of its drug discovery pipeline.

Although revenues in the latest quarter got a big boost from the $40 million milestone payment Covidien made when the drug was approved, CombinatoRx also narrowed its losses significantly, despite posting a $29 million charge related to its merger. CombinatoRx is now set to receive royalty payments on sales of Exalgo, which is used to treat moderate to severe pain in patients who require treatment with opioid painkillers for an extended period.

While 93% of the CAPS members rating CombinatoRx believe it will outperform the market, there are still risks here. For example, the company's next-closest drug for approval is Synavive, a treatment for osteoarthritis of the knee. CombinatoRx has had some problems in the past with reaching end points in clinical trials, but more recently has experienced better outcomes. On the positive side, it does have a collaborative agreement with Novartis (NYSE: NVS) focusing on the discovery of novel anticancer combinations.

Head over to the CombinatoRx CAPS page and tell us what you think about the biopharmaceutical.

Playing defense
A lot of times we investors only see a company's end product without realizing what goes on behind the scenes, or that a name brand is built on the work of others. Network Engines is one of those behind-the-scenes companies: It markets application platform solutions to original equipment manufacturers and independent software vendors who resell them and support them under their own brand names. Perhaps one of Network Engines'  most well-known customers is storage specialist EMC (NYSE: EMC).

Highly rated CAPS All-Star Defshark82 likes that the company specializes in storage and network security.

Still learning more about this company. However, for starters the fact that the company has cash and zero debt is a good start. Volume has been increasing lately and if you look at the chart … this stock has been consistently moving upward. Plus, the fact that it deals with storage and network security is nice. Add in some recent insider purchases and I think we have a winner.

Open spaces
PURE Bioscience got everyone all shook up when its sanitizer used in food-packaging and processing settings was registered with the Environmental Protection Agency, which will allow it to begin marketing the product. Yet many investors remain cautious about PURE Bioscience: Almost two-thirds of those rating the company think it will underperform the market.

All-Star TMFDitty says it's selling at some extreme valuations, whatever promise it may hold: 

Um, PURE sells for more than 100 [times] revenues, guys. It booked less than a [million] in revs, but lost nearly $7 million last year. Silly, silly, silly.

That, and the fact that it will go up against bigger, better-financed companies like Clorox, with their own hard-surface cleansers means it's no slam dunk for the company.

Keep a high profile
Sign up today for the completely free Motley Fool CAPS service and tell us whether these low-profile stocks are on their way to higher returns. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.