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 Azz to Innophos. 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.


CAPS Rating
(out of 5)

No. of Active Picks

Est. EPS Growth Next Year





Oclaro (Nasdaq: OCLR)




Zion Oil & Gas (NYSE: ZN)




Source: Yahoo! Finance, 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.

Under the radar
Best known as a prepaid telephone card provider, IDT has diversified into energy services and oil exploration but these are businesses that currently serve as a drain on operations. But there has been a turnaround achieved here, and its shares have broken out, rising nearly 600% over the past year (and they're up 260% year to date)!

Yet investors might want to use caution here because the same factors that almost once crushed IDT are still facing it. Competition is fierce in the prepaid card market with almost all wireless carriers also offering prepaid cards as well as prepaid devices, while Coinstar (Nasdaq: CSTR), InComm, and Blackhawk Network offer competing products as well.

While its energy services mission might be something akin to reselling minutes, the move into shale oil exploration with Total SA (NYSE: TOT) and Schlumberger (NYSE: SLB) is a bit out of its core of competency.

CAPS member mrhineheart views the jump to profitability as a significant achievement that bodes well for the future: "This company finally turned the corner on profitability and has huge sales/share figures. Debt is low and cash is high. Price/Sales is .29. Buy! Buy! Buy!"

I'd still urge caution and point out that each of IDT's segments is showing weakness and profitability was obtained by slashing expenses. It won't be able to maintain that pace and with business lines deteriorating as they were the feel-good euphoria won't last for long.

Rev those engines
Investors are looking for optical components maker Oclaro to make the next leg up in growth by piggybacking on China's economic ascendance. Since the merger of Bookham and Avanex last year, Oclaro has surpassed adjusted gross margin targets of 30% and now with its acquisition of Mintera, it's looking for its high-speed transmission business to post gross margins exceeding 40%. That should ultimately help the components maker to become profitable on a GAAP basis.

More than 83% of CAPS members rating it see the optical components specialist beating the market, but use the Oclaro CAPS page to let us know if you see its outcome as assured as well.

End of times
Sure, skeptics have smirked about the claims made by Zion Oil & Gas that the Bible hints at huge oil and gas reserves buried beneath Israel. The company hasn't offered investors much of anything despite nearly a decade of searching for such deposits, but maybe they were just slightly askew with their drilling.

According to a U.S. Geological Survey report released in April, the Levant Basin in the Tamar field may hold 1.7 billion barrels of recoverable oil and 227 trillion cubic feet of recoverable gas, and Noble (NYSE: NE) recently raised its gas estimates in the nearby Leviathan block to 16 trillion cubic feet. Zion says all of its exploration rights fall within the Levant Basin.

It's still going to take a leap of faith for investors to back this exploration play, and just 67% of those CAPS members rating Zion Oil & Gas think it will go on to outperform the broad market averages.

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 more full 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.