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
Est. EPS Growth Next Year
American Capital Agency (NAS: AGNC)
Primero Mining (NYS: PPP)
Ship Finance International (NYS: SFL)
Sources: 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.
Hiding in plain sight
I've noted how mortgage REITs like American Capital Agency, CYS Investments (NYS: CYS) , and Annaly Capital (NYS: NLY) will benefit from the Fed'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 offer eye-popping dividend yields that offer an alluring, yet risky, attraction to investors.
American Capital reported a fairly strong quarter, but like similarly situated risks ran into fears over prepayments. REITs need to buy new paper to replace those that are paid off, possibly at less favorable terms, and the federal Home Affordable Refinance Program, or HARP, just made it easier for homeowners to refinance. While American Capital stressed that it's never had a higher percentage of assets backed by loans with favorable prepayment characteristics, and that its exposure to HARP loans was limited (less than 5% of its portfolio are eligible for HARP), the stock offering of 37 million shares in hopes to raise $1 billion to buy new paper seems to have investors skittish.
Regardless, American 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 American Capital Agency CAPS page if this has become too risky, and add it to your watchlist to be notified of the latest developments.
Yes, my precious
Junior gold miner Primero Mining continues to live up to its billing as the greatest gold stock in the world. Its San Dimas mine generates such strong cash flows, exceeding its capital requirements, that it is paying off early the $30 million balance left on a $60 million convertible note issued as part of the mine's acquisition.
Primero was born from a deal that took the San Dimas mine from Goldcorp and Silver Wheaton (NYS: SLW) but respectively gave them a 36% stake in the company and a lifetime guarantee to its silver streams.
That deal is also spurring the miner to go after a possible tax change that could dramatically boost its earnings in 2013. Primero sells its silver to Silver Wheaton at $4 per ounce but pays taxes on it based on the spot price, which currently sits north of $34 an ounce. It's asking Mexican taxing authorities to tax it on realized silver prices rather than spot prices, and its advisors suggest that, though there's no guarantee, it has a better than 70% chance of success.
That could be why all but one of the 38 CAPS All-Stars rating Primero think it will outperform the market indexes. Add Primero Mining to your watchlist and let us know in the comments section below whether you agree this is the greatest gold stock around.
The glut of ships in the tanker and dry bulk industry has sunk the fortunes of more than one shipper, but Ship Finance International is still sailing on fairly smooth waters because of its focus on long-term contracts that takes out a lot of the volatility. And though one of its customers, Frontline (NYS: FRO) , has made a lot of noise recently about renegotiating its long-term contracts, Ship Finance says there's no wiggle room in its contracts, so there is no renegotiation possible.
Of course, taking such a hard line sounds good, but it rarely makes for good customer relations policy so it's always possible we will see some changes. Ship Finance notes that where once Frontline was its sole customer, it now has 14 different clients, so it's no longer as dependent on the shipper as it had been, and SeaDrill actually makes up 40% of its backlog now. Frontline still remains one of its biggest counterparties, however.
CAPS member RLR0528 is looking for industry dynamics to further tilt the balance of power toward Ship Finance.
The maritime tanker industry overbuilt ships and is suffering from a supply glut which holds down the daily rate which they can aquire in the competitive market. But this is an essential service which will not go out of demand. Look for consolidation of operators and scrapping of older ships which will bring the supply/demand ratio (and daily rates) back to more profitable levels.
Add the ship operator to the Fool's free portfolio tracker and tell us on the Ship Finance International CAPS page if you think it will have the wind in its sails going forward.
At the time this article was published Fool contributor Rich Duprey owns shares of Primero Mining, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Annaly Capital Management. 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.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.