Wall Street's Best Hidden Stocks
When asked for the secret of his success, baseball player Wee Willie Keeler replied, "Hit 'em where they ain't." What worked for Willie at the plate applies equally well in investing.
Seeking stocks that others ignore, shun, or simply forget gives individual investors like you an edge over the professionals. When Wall Street turns a blind eye, you have a chance to get in before these stocks get discovered -- or rediscovered -- and start taking off.
Below, we'll check out companies with only a handful of analyst coverage, then pair our list with the opinions of the Motley Fool CAPS community. A stock that garners CAPS' top ratings, but hasn't yet caught analysts' attention, could be your next home run investment.
Wall St. Picks
|Armour Residential REIT (NYS: ARR)||****||1||22%|
|FLY Leasing (NYS: FLY)||*****||4||31%|
|SeaDrill (NAS: SDRL)||*****||5||11%|
Source: Yahoo! Finance; Motley Fool CAPS.
Remember, without much analyst support, you'll have to do your own scouting to see whether these stocks deserve a spot on your portfolio's roster. Don't buy or sell them based solely on their appearance here.
Putting a roof over your head
Chasing yield is a fool's errand (note the lower case "f"), but there are times when buying into a high-yielding stock is a smart investment. Armour Residential REIT might be one of those cases.
REITS like Armour, Annaly Capital (NYS: NLY) , and Chimera Investment (NYS: CIM) thrive in a low interest rate environment as the spread between the interest they pay on their debt and the interest they get from their mortgage-backed portfolios tends to be high. With the U.S. economy dead in the water, unemployment above 9%, the housing market moribund, and a lack of political will in Washington to cut spending, the Federal Reserve has signaled its intention to keep interest rates low for at least the next two years.
There doesn't seem to be an end to the REIT party in sight, and shares of Armour are 31% higher over the past year, compared to a 5% increase for the S&P 500. That could be why all 18 CAPS All-Stars rating the REIT believe it will continue to outperform the broad market averages.
Let us know on the Armour Residential REIT CAPS page whether you think a REIT is the right investment for your portfolio.
Castles in the sky
Air passenger travel may be climbing higher, according to the latest numbers from the International Air Transport Association, but the rate of growth is slowing. And with oil prices rising, profits are likely to be lower. IATA forecasts airline industry profits will drop to $4 billion, down 78% from 2010. It's also 46% below the profit levels it forecast just this past March.
Southwest Airlines is cutting back on capacity expansion even though it posted a profit this quarter, because earnings came in lower than expected and fuel costs rose 64% year over year. US Airways (NYS: LCC) said traffic jumped 5% in July while passenger revenue per available seat mile rose 8%, but fears of a weak economy hurting air travel have sent its shares down almost 50% this year.
That could be a problem for FLY Leasing, a commercial aircraft leasing company that counts US Airways as one of its customers. Over 20% of its revenues come from North American airlines. But as CAPS member kf6spf pointed out earlier this year, if airlines are looking to save money at a time of high fuel costs, airplane leasing might just be a good idea: "Airlines need newer aircraft that use less fuel. With costs raising, aircraft leasing makes sense."
Add the leasing company to your watchlist and see if it can still take flight from industry weakness.
Drilling down for value
The thaw finally under way in deep-sea drilling permits means offshore drilling contractor SeaDrill can return to its profit-making ways.
You really can't compare year-over-year results with the drillers, since the moratorium the Obama administration put in place -- and subsequent foot dragging by the Interior Department in issuing permits when the courts ordered the moratorium lifted -- obviously negatively affected their operations. Noble, for example, reported a 12% drop in revenues, while Transocean's (NYS: RIG) drilling revenues were down 8%. SeaDrill reports earnings Thursday and we can probably expect more of the same.
Investors will need to watch quarter-to-quarter results to get a sense of progress. Noble's revenues were up 8.5% from the prior quarter while Transocean saw a 9% jump. With SeaDrill's stock down 10% this year and off 20% from its highs, CAPS member FourBees finds SeaDrill an especially good value:
This company has a huge dividend that is supported by earnings largely from long term contracts. Oil prices will go up and down, but there is little effect on the company unless they go through the floor. I think this is extraordinarily unlikely. I can't find any reason this is not an incredible value.
All but one of the almost 450 CAPS members who have rated SeaDrill mark it to beat the market indexes; all of the 109 All-Stars rating the stock agree. Add the deep-sea driller to the Fool's free portfolio tracker and see if it's worth its building on.
Swing for the fences
When seeking investments where no one else is looking, Motley Fool CAPS is the best place to start your own research. 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.
Sign up today for the completely free service, and tell us whether these hidden stock opportunities will help us go one up on Wall Street.
At the time this article was published The Motley Fool owns shares of Annaly Capital Management, Noble, Chimera Investment, and Transocean. Motley Fool newsletter services have recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.
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