In many, if not most cases, you want to avoid betting on the same horse, which makes the concept of hidden-gem stocks quite compelling. Generally, the equities sector features at least moderate efficiency, meaning that security has absorbed the collective weight of all publicly available information. So, that leaves little room for the target stock to jump higher.
Stated differently, under-the-radar stocks lack predictability. But because that’s the case, they also offer higher upside potential – and that’s rational capitalism at play. Basically, the higher the risk, the higher the reward. Indeed, it works the same way in the derivatives market. For example, those who write (sell) near-expiry contracts receive less premium for their troubles compared to writing long-expiry contracts.
The reason? A lot of stuff – the mahogany-toned iteration – can happen over a longer period than a shorter period. This concept brings us to the potential of highly rated (by the experts) hidden gem stocks that don’t get much media coverage. These are established enterprises – they just get the media representation of lesser-known companies.
Still, you can use that to your advantage before the public catches on. Below are under-the-radar stocks to consider.
Agree Realty (ADC)
A real estate investment trust (REIT), Agree Realty (NYSE:ADC) is an industry leader in the acquisition and development of properties net leased to the foremost retailers in the U.S. As of the end of September this year, Agree owned and operated a portfolio of 2,084 properties. This footprint covers 49 states and contains approximately 43 million square feet of gross leasable space.
So, why is ADC down more than 17% this year? Fundamentally, questions surround the viability of the consumer economy. Despite debates about the topic, the hard data doesn’t present a rosy picture. According to the Michigan Consumer Sentiment Index, the gauge fell for a fourth consecutive month in November. At the same time, you could make a case for hidden-gem stocks here.
While risky, Agree Realty enjoys a solid three-year revenue growth rate of 6.1%, above the sector median of 1%. Additionally, the company features consistent profitability. And it doesn’t hurt that company insiders from the CEO on down have been buying shares in recent months. Analysts call it a strong buy. It’s tough to disagree.
Mobileye (MBLY)
A specialist in autonomous vehicle technology, Mobileye (NASDAQ:MBLY) represents one of the most relevant ideas among under-the-radar stocks. Fundamentally, the company – if all the stars align – could dramatically spark a paradigm shift in the economy. Per recent estimates, traffic congestion and associated delays cost American society over $120 billion annually. So, Mobileye could unlock massive productivity.
Sure enough, since the January opener, MBLY gained almost 27%. In the trailing 52-week period, it swung up more than 45%. Still, when you look at the security’s trailing one-year high, peak progress has been limited and fickle. Put another way, there could be some additional value to be extracted, making Mobileye one of the hidden-gem stocks.
Plus, the focus lately – especially in the electric vehicle segment – has been the ongoing price war and myriad other headwinds. But that hasn’t stopped corporate insiders from quietly picking up shares. Currently, analysts peg MBLY a strong buy with a $50.50 price target, implying 22% upside.
Teck Resources (TECK)
Based in Vancouver, British Columbia, Canada, Teck Resources (NYSE:TECK) is a diversified natural resources firm. Per its public profile, Teck specializes in mining and mineral development. Its business also includes coal for the steelmaking industry. Further, its secondary products include lead, silver, gold, molybdenum, germanium, indium, and cadmium. The latter represents a useful but controversial metal for EV battery production.
Despite the relevancies that Teck offers, its shares just haven’t performed well. Since the beginning of the year, TECK only gained a bit over 1%. In the trailing 52 weeks, it’s actually a hair below parity. Nevertheless, the disappointing performance makes the enterprise a candidate for hidden-gem stocks. Beyond the industrial utility, the precious metals have bounced sharply higher in recent sessions.
In my view, Wall Street may be sleeping on this one, presenting a viable case for under-the-radar stocks. Sure enough, the market prices TECK at only 8.02x forward earnings, below the sector median of 10.63x. It’s also a unanimous strong buy among – get this – 14 analysts.
CVS Health (CVS)
One of the riskiest ideas for hidden-gem stocks that don’t get much media coverage – or for any categorization for that matter – CVS Health (NYSE:CVS) presents a rough case. On Wednesday, CVS dropped almost 3.5%, badly underperforming the major indices. Since the start of the year, the stock gave up 28% of equity value.
Fundamentally, the volatility is understandable given that competition is rising. Indeed, the online pharmacy sector is starting to gain serious momentum, clouding CVS. Further, the fading fears of Covid-19 might lead to reduced sales of pandemic-related products and services. Barring an extremely unusual event, headwinds will likely pressure CVS. Nevertheless, for patient investors, it could rank among the hidden-gem stocks.
As The Motley Fool pointed out, the pharmacy giant is well positioned to serve the aging baby boomer population. Also, the retail pharmacy model represents one of the few arenas where brick and mortars may win out over their online competitors due to the convenience factor, ironically enough.
Analysts view shares as a strong buy with an $87.20 target, implying over 30% growth.
Energy Transfer (ET)
Headquartered in Dallas, Texas, Energy Transfer (NYSE:ET) is a publicly traded master limited partnership (MLP) midstream hydrocarbon specialist. I mentions this right off the bat you might be attracted by its forward dividend yield of 9.14%. That’s well above the average for the underlying energy sector. However, you must file a Schedule K-1 due to the distinct tax structure of MLPs.
For some folks, that might be too much of a pain. On the other hand, I don’t presume to know everyone’s preferences. I mean, it’s not impossible that someone might enjoy paperwork, especially when you’re talking about such a robust dividend. On a fundamental note, Energy Transfer has very little media coverage tied to the business. That’s interesting because ET is on a decent run this year.
Also, it’s worth pointing out that several insiders bought ET stock in November. Thanks to Executive Chairman Kelcy Warren, more than 2 million shares have been acquired. With analysts rating shares a strong buy with an $18.33 target, it’s one of the hidden-gem stocks to consider.
Caesars Entertainment (CZR)
On the surface, Caesars Entertainment (NASDAQ:CZR) seems a risky idea for under-the-radar stocks. While the company enjoys little media coverage, the broader fundamentals also seemingly leave little reason to bet on it. In particular, the revenge travel phenomenon may be fading out, which would be problematic for such a “destination” firm. However, a contrarian argument also exists.
As Zacks recently mentioned, Caesars continues to benefit from robust occupancy. During the third quarter, occupancy in Las Vegas jumped 300 basis points year-over-year to 96.6%. While travel demand may be hurting in other areas, Sin City seems to be doing just fine. Despite this upswing, CZR is undervalued, trading at only 12.17X forward earnings. In contrast, the sector median is 15.42X.
Even better, the company’s three-year revenue growth rate clocks in at 16.5%, well above the sector average. Notably, company director Michael E. Pegram bought 15,000 shares not too long ago, providing confidence to outsiders. Lastly, analysts peg CZR a strong buy with a $63.09 price target, implying over 40% upside.
Yum China (YUMC)
Probably the riskiest idea among hidden-gem stocks on this list, Yum China (NYSE:YUMC) suffered a loss of nearly 24% of equity value since the start of this year. Over the past five years, it’s up 20% but that’s hardly an impressive performance given the expanded timeline. Stated differently, YUMC has now frustrated longtime stakeholders, leaving questions about its forward trajectory.
Fundamentally, Yum China appears problematic due to concerns about a slowdown in the Chinese economy. On paper, the headwind may lead to lower discretionary spending, which could hurt Yum China. At the same time, Chinese consumers love American fast-food chains and the company operates several in the world’s second-largest economy, including KFC and Pizza Hut.
For those who do want to take a risk, Yum China commands a strong trailing-year net margin of 7.41%. In addition, it prints a cash-to-debt ratio of 1.28x, beating out 81% of the competition. And while insider transactions feature a mix of buys and sell ratings, many of the acquisitions have come from institutional investors. Finally, analysts rate YUMC a strong buy with a $64.86 target, projecting 51% growth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
