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.
CAPS Rating(out of 5)
Wall St. Picks
Estimated EPS Growth Next Year
|Resource Capital (NYS: RSO)||****||4||N/A|
|Stillwater Mining (NYS: SWC)||****||4||(7%)|
|Taseko Mines (ASE: TGB)||****||2||50%|
Source: Yahoo! Finance; Motley Fool CAPS. N/A = not available.
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 just buy or sell them based solely on their appearance here.
Making a mint on mortgages
Real estate investment trusts like American Capital Agency (NAS: AGNC) , CYS Investments, and Resource Capital benefit from the Federal Reserve's low interest rate policies because they can borrow money for next to nothing and profit from the interest rate spreads on the mortgage-backed securities they invest in. They're also able to provide eye-popping dividend yields that offer an alluring but dangerous attraction to investors.
Unlike the mortgage REITs, though, Resource Capital focuses on commercial real-estate-related assets and high-yield commercial finance assets. That carries its own risks, though. For example, the Apidos unit of Resource Capital's external manager, Resource America, recently teamed up with Citigroup to put together a new collateralized loan obligation arrangement that will pool high-yield, high-risk loans and slice them into securities of varying risk and return. Sound familiar? CLOs are very similar to the CDOs that were part and parcel of the financial crisis. They never died off, and they've been gaining more adherents these days even as the ratings agency Fitch reports delinquencies on them are on the rise, hits 12% after four months of declines.
Regardless, Resource Capital remains a popular pick on CAPS where 96% of those rating the specialty finance outfit think it will outperform the broad market averages. Let us know in the comments section below or on the Resource Capital CAPS page if this become a risk too far, and add it to your watchlist to be notified of the latest developments.
Not so precious
Now that Stillwater Mining has closed the deal for Argentinean gold miner Peregrine Metals, it can put the hand-wringing over the purchase price behind it. Yet while platinum and palladium prices have bounced from their lows from earlier this month, they still languish well below their levels from earlier in the year.
The economy in general, and the auto industry in particular, has weighed heavily on Stillwater and industry peer North American Palladium (ASE: PAL) , which may explain why the former was looking to add diversity to its portfolio with gold, copper, and other metals. Peregrine's mines were originally drilled by Rio Tinto (NYS: RIO) and it is still entitled to a 1% royalty.
The price tag may have been too high, and management will now be put to the test to see if its contention that the deal should have been viewed on the basis of the price of copper was correct.
CAPS All-Star JackCaps thinks the market unfairly beat up Stillwater as it is an otherwise solid choice, putting him in the camp of the vast majority of the investor community who believe it will beat the Street. Add Stillwater Mining to your watchlist and let us know in the comments section below what you calculate the risk will be to your portfolio.
Earning a shine
Another miner on the way back is Taseko Mines, which is also counting on copper to pull it up. With supply of the metal still a concern as strikes in Indonesia and Peru escalate, prices have risen 15% from their nadir. Add to that an improving situation in the European debt crisis and conditions for increased demand, and prices could rise further.
This all comes about as Freeport-McMoRan (NYS: FCX) halted production at its Grasberg mine in Indonesia, which will add to the production deficit being forecast for the copper market. It's just one reason Joy Global believes the metal has "the strongest fundamentals."
CAPS member pchop123 would be hard-pressed to disagree considering the mining project it is beginning: "great story about to unfold-they are now going to begin drilling an ewxtremely profitable mine based on the assay after the approval of the Canadian government and some good PR with the local Indian tribes."
Add the miner to the Fool's free portfolio tracker and tell us on the Taseko Mines CAPS page if you think the industrial metal will help pull the copper miner up by its bootstraps.
At the time this article was published
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