Hidden Stocks for High Returns

Although some investors pile into momentum stocks looking to ride the wave higher, others choose to buy into those overlooked by Wall Street and Main Street, preferring to find undervalued gems to invest in. The former flash and crash when the momentum goes cold; the latter have a better shot at delivering outsized gains over the long haul.


CAPS Rating (out of 5)

No. of Active Picks

EPS Growth Last Year

Est. EPS Growth This Year

DigitalGlobe (NYS: DGI)





GNC Holdings (NYS: GNC)





Source: Motley Fool CAPS.

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.

Got my eye on you
With the government cutting back spending on satellite imaging (oh, if they would only take that approach to the rest of the budget!), having two top-flight eye-in-the-sky companies quickly became superfluous. Either GeoEye (NAS: GEOY) or DigitalGlobe was bound to be on the outs, and with the former losing its Enhanced View contract, which accounted for two-thirds of its revenue, it quickly became apparent which one it would be.

With its satellites grounded, as it were, GeoEye agreed to the $900 million offer from DigitalGlobe to buy it, putting the latter in a position to strengthen its own base.

DigitalGlobe also receives 63% of its revenue from the government, but the combined company will end up being more diversified, with about half of the revenue coming from commercial interests like Google, for which it provides satellite imagery. Each company was also building another satellite to launch into space, and while DigitalGlobe will complete them both, only one will be put into orbit when completed; the other will be saved for a future date.

Becoming the dominant player in the space with extensive business and government contracts, and with the complementary services achieved from the acquisition, I think its trajectory will keep going higher. I've rated it to outperform the market indexes on CAPS. Give me a snapshot of your opinion in the comments box below or on the DigitalGlobe CAPS page.

A healthy opportunity
Health and wellness has been a healthy business for GNC and Vitamin Shoppe, both of which have seen their stocks rise 30% or more in 2012. But look back a full year and we see GNC running ahead of its rival by nearly 3:1.

The vitamin and supplement business is a $27 billion industry that's growing. Although there is a lot of fragmentation in the space, GNC has been able to consistently grow its presence without hurting its bottom line, beating out rivals like Herbalife (NYS: HLF) and Schiff Nutrition, as well as niche players like Omega Protein.

In the latest quarter, sales were up almost 20% to $619 million, generating profits of $0.62 per share, up 59% from the year-ago period. Same-store sales, an important retail metric because it shows company growth without the distraction of acquisitions or the opening of new stores, lurched 13% higher. Things are likely to get even better for the company, as it recently expanded its relationship with Wal-Mart's Sam's Club to give it even more visibility in the warehouse stores. It also has deals in place with Rite Aid and drugstore.com. A partnership with PetSmart (NAS: PSMT) for pet-centric health and wellness products could also prove to be a real boon to business.

That's given me a healthy respect for GNC's capabilities, and I've rated it to outperform on CAPS, agreeing with kf9211 that its combination of "Growing earnings. High margin industry. Best of breed company. Pricing power" makes it a winner.

Let me know on the GNC CAPS page whether you agree that an investment here would be a good supplement to your portfolio.

Keep a high profile
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The article Hidden Stocks for High Returns originally appeared on Fool.com.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Omega Protein, GeoEye, PriceSmart, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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