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
Wall St. Bullish Sentiment
Est. EPS Growth Next Year
|National Grid (NYS: NGG)||*****||5||100%||6%|
|Telecom Corp of New Zealand (NYS: NZT)||*****||2||50%||21%|
Source: Yahoo! Finance; Motley Fool CAPS. NC = not calculable; NA = not available.
Remember, without much analyst support, you'll have to do your more scouting on your own 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
There's a reason National Grid might not have the prominence of other utilities: It's an energy giant in the U.K. with just a portion of its assets here in the U.S. While the U.S. business generates some 60% of the utility operator's revenues, it's the U.K. business that powers its profits with a similar percentage return. It also expects its longer-term growth to be dictated by the investment program it's initiated in Britain.
But consumers in the northeast should expect to see rate relief from their utilities as depressed natural gas keeps prices down. National Grid and NSTAR (NYS: NST) , both of which provide electricity to the New England area, are cutting prices because warmer weather has reduced natural-gas demand. Prices for the fuel have plummeted as drillers keep pumping the gas out of the ground.
Interestingly, consumers bills won't be as low as they otherwise could be because National Grid is just one utility that actually adds a fee when temperatures are out of the norm. Of course, when temperatures are colder than usual, you get a refund. New Jersey's Public Service Enterprise Group (NYS: PEG) had a weather normalization clause approved for its gas customers back in 2010.
From an investor's standpoint, this adds greater predictability to cash flows for utilities even if consumers themselves aren't so keen on it. And with a new dividend policy coming to the fore for National Grid, CAPS member fooch44 sees the inflation hedge it offers as a U.K.-based operator a prime benefit.
National Grid should be able to grow its very attractive dividend ~6% in the coming years at a 5% clip. Challenges and risks arise with regulators, as is typically the case with utilities. One of my favorite aspects of this stock is the direct inflation hedge, as consumer rates are directly linked to a UK inflation index. Combine this with a healthy and growing yield and you have a real return on investment in the form cash.
Add National Grid to your Watchlist and see how long it stays off the grid of the analyst community.
Undoubtedly also out of the limelight because of its location, Telecom Corp of New Zealand is facing increasing competitive pressures not only from domestic rivals like upstart 2degrees, which has seen tremendous growth in small- and medium-sized business customers. That's an assault on TNZ's base since its XT network accounts for 56% of its customers and 82% of the cellular revenue it generates.
It also faces inroads being made from China Telecom (NYS: CHA) , which recently announced it was connecting New Zealand with Auckland via a cable it was laying with Huawei that would allow it to bypass other routes.
Yet with a dividend that's currently yielding north of 11%, CAPS All-Star member georgevtucker thinks the telecom from down under is worth holding onto for that reason alone. Call up the opinion of others on the Telecom Corp of New Zealand CAPS page and add it to the Fool's free portfolio tracker to see if it has the zeal to break out.
Swing for the fences
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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 National Grid. 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.
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