Hidden Stocks for High Returns

Before you go, we thought you'd like these...
Before you go close icon

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. Overlooked by Wall Street and Main Street -- and thus undervalued -- these stocks hold the best potential to deliver outsized returns.

Stock

CAPS Rating(out of 5)

No. of Active Picks

EPS Growth Last Yr.

Est. EPS Growth This Yr.

Accuride (NYS: ACW) ****430%NC
NSTAR (NYS: NST) ****934%3%

Source: Motley Fool CAPS; NC = not calculable.

The Motley Fool CAPS community knows a bargain when it sees one. Below, you'll find two under-the-radar stocks that brim with promise. These companies have garnered 100 or fewer active recommendations on CAPS, though the community thinks they still have outsized potential.

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.

Keepin' on truckin'
According to the American Trucking Association, commercial truck shipments rose a seasonally adjusted 6.8% in December, making 2011 its largest growth spurt in 13 years at 5.9%. As manufacturing production and restocking of inventories grew, companies used trucks more often than not to transport those goods.

Truck and trailer wheel manufacturer Accuride is expecting the trend to continue, as it plans on investing as much as $75 million this year to make sure it has quality product available when needed while also upgrading its manufacturing processes. It has good reason to be confident, too.

ACT Research says commercial trailer manufacturers are experiencing rising backlogs of orders coupled with low levels of cancellations. That conforms to what trailer maker Wabash National is seeing. Last quarter, its backlog was $513 million, up 54% from the year-ago period. Heavy duty truck maker PACCAR (NAS: PCAR) is also seeing greater demand, seeing sales rise 74% in the third quarter.

Accuride is looking to use this period of growth to position itself to be one of the top two wheel makers globally. While it commands a majority of the market in steel wheels, it largely plays second fiddle to Alcoa (NYS: AA) in aluminum, the exception being in aftermarket wheels. It's had to regroup after some quality-control issues, but sees 2012 as a building year. That could be why all 10 CAPS All-Stars rating Accuride see it as outperforming the market averages.

With its shares still down 50% from last year, I've marked it to outperform as well. Let us know in the comments section below or on the Accuride CAPS page if you agree (or disagree) that it's on the road to recovery, then add it to your Watchlist to be notified of any developments as they occur.

Down but not out
States are holding up proposed utility mergers until the power generators offer up plans to go green. Exelon (NYS: EXC) is attempting to take over Constellation Energy Group in an $8 billion deal, but first must agree to develop as much as 180 megawatts of energy from alternative sources -- including solar, wind, and poultry poop! -- to smooth the regulatory approval process. Northeast Utilities is coming under greater scrutiny in its merger bid with NSTAR over how it will meet Massachusetts' green initiatives.

Although the strong-arm tactics sound like they have the angels on their side, sprinkling the "go green" pixie dust on a merger raises the costs associated with operating the utility. And because Massachusetts regulators are also changing their policy of "no net harm" from a merger to one of proving a "net benefit," the state will make it harder to meet those competing visions.

The former standard essentially said so long as there wasn't harm being caused by consolidation, regulators wouldn't oppose a merger. Now, companies "must demonstrate that the proposed transaction provides benefits that outweigh the costs," even as regulators are increasing those costs.

Although NSTAR says it is implementing a substantial 16% price cut in the middle of winter ostensibly because of lower natural gas prices, one can't escape the conclusion there are other reasons at play as well.

NSTAR has traded in a fairly consistent range between $43 and $47 a share for the past year, yet more than two dozen All-Stars unanimously expect it to beat the indexes going forward. Add NSTAR to the Fool's free portfolio tracker and let us know in the comments section below whether you think it will be able to smooth over the merger process.

Keep a high profile
These promising stocks possess equally persuasive arguments for swearing them off, highlighting why you need to look beneath the headlines and press releases to get a fuller picture of where your money is going.

Looking where others don't is how The Motley Fool uncovered two small-cap stocks with solid government deals that are ready to deliver multibagger returns. Check out The Motley Fool's free report "Too Small to Fail: Two Small Caps the Government Won't Let Go Broke." Get access to detailed analysis of these two companies -- it's completely free.

At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of PACCAR and Exelon, as well as writing a covered strangle position in Exelon. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners