The world of investing can be overwhelming with so many options. But, there are hidden gems waiting to be found. These are stocks that are not well-known but could bring big returns. Retail investors can find these gems more easily than big investors.
Big investors often avoid stocks that are not traded much. This gives retail investors a chance to find these overlooked stocks. Research shows that these neglected stocks can bring in big returns. They average a 16.4% annual return, much higher than the 9.4% for popular stocks.
This article will look at 6 hidden gem investments in different areas like utilities and financial services. These stocks can make your portfolio more diverse and could bring big gains if you look closely at their value.
Key Takeaways
- Retail investors have a significant advantage over institutional buyers in finding undiscovered “hidden gem” stocks.
- The “neglected firm effect” can lead to outsized returns, with neglected stocks generating 16.4% average annual returns compared to 9.4% for well-covered stocks.
- This article explores 6 hidden gem investments across different sectors, including utilities, financial services, and consumer discretionary.
- These hidden gem investments can help diversify your portfolio and potentially deliver exceptional returns.
- Identifying and investing in these overlooked stocks requires a willingness to dig deeper and uncover their true value.
Undiscovered Stocks: The Investor’s Edge
For smart retail investors, finding hidden gem investments can give them a big lead over big investors. They can tap into the potential of small-cap and thinly traded stocks. This gives them a special edge.
Retail Investors’ Advantage Over Institutional Buyers
Institutional investors like mutual funds and hedge funds often avoid small, low-volume stocks. This is because big trades in these stocks can be risky due to price swings. This creates a chance for individual investors to make the most of “hidden gem” stocks.
The Lack of Wall Street Coverage for Small Stocks
Research shows that Wall Street analysts cover only about one-third of the 8,900 U.S. exchange-traded stocks. This doesn’t mean these companies are not good or won’t grow. It’s because they don’t offer big investment banking fees. This means many stocks are overlooked and ready for retail investors to find.
This situation lets retail investors find hidden gems that could bring big returns. By looking at small-cap and thinly traded stocks, smart investors can get ahead in finding great investment chances.
“The best stocks to own are the ones no one else wants.” – Peter Lynch, renowned investor and author
Hidden Investments for Outsized Returns
Looking for hidden investment chances? The “neglected firm effect” is a key strategy for retail investors. It means stocks that Wall Street overlooks can bring big returns. These are stocks that are not as popular.
The “Neglected Firm Effect” and its Benefits
A study looked at neglected and well-covered S&P 500 stocks over nine years. Neglected stocks returned an average of 16.4% a year. Well-covered stocks returned only 9.4% a year. This shows how retail investors can find hidden gems that the market hasn’t yet seen.
Capitalizing on the neglected firm effect means looking for stocks that others ignore. These are the undervalued stocks that big investors and analysts haven’t noticed. Finding these stocks can lead to big returns.
- The neglected firm effect suggests that stocks overlooked by Wall Street can generate higher returns.
- A study found that neglected S&P 500 stocks outperformed well-covered stocks by a significant margin over a nine-year period.
- Retail investors who are willing to explore beyond the mainstream can uncover hidden investment opportunities with the potential for outsized returns.
Understanding the neglected firm effect helps investors find hidden gems. By looking for undervalued, overlooked stocks, investors can get ahead in the market. This can lead to great returns.
“The best place to find a helping hand is at the end of your own arm.”
– Swedish proverb
Global Water Resources: An ESG Hidden Gem
Global Water Resources (GWRS) is a top pick for investors looking into the water management sector. This Arizona company thrives on the growing need for water in its service areas. It also meets the demand for investments that are good for the planet and society.
GWRS is unique because it manages all aspects of water, from clean water to wastewater and recycled water. This strategy boosts water efficiency and adds value for customers. It has led to strong revenue growth and better earnings for the company.
The company is a leader in using water wisely and embracing green technologies. This makes it a favorite among investors who want to support eco-friendly projects. GWRS’s efforts in water conservation set it apart in the industry.
GWRS also shines financially, with a steady monthly dividend that has grown for four years. The dividend yield is a solid 2.5%, offering investors a dependable income stream.
With the world’s population rising, the need for sustainable water solutions will grow. GWRS is well-positioned to meet this need with its innovative approach and strong finances. It looks set to offer great returns to its investors.
Tiptree: A Hidden Gem in Specialty Insurance
Many investors focus on big names in finance, but Tiptree Inc. (TIPT) is a hidden gem in specialty insurance. It offers a variety of specialty insurance products. The company’s Fortegra unit is growing fast, bringing in more premiums and income.
Monetizing Assets and Robust Growth
Tiptree is great at making money from its assets. It sold parts of Fortegra and its shipping business. These moves gave it more money for growth and buying other companies. This has made Tiptree stronger in specialty insurance.
Undervalued Sum-of-the-Parts Analysis
Looking closely at Tiptree shows a fascinating story. Its Fortegra business is worth $19.85 per share, and other parts are worth $6.27 per share. This means Tiptree is worth more than twice its current price. It’s a hidden gem in specialty insurance, asset monetization, and financial services.
| Segment | Valuation |
|---|---|
| Fortegra | $19.85 per share |
| Other Segments | $6.27 per share |
| Total Valuation | More than twice the current share price |
Tiptree shines by making the most of its assets and growing fast. Its undervalued sum-of-the-parts valuation makes it a great investment in financial services.
Chico’s FAS: A Turnaround Hidden Gem
Chico’s FAS (CHS) is a standout in the consumer discretionary sector. It’s a women’s apparel retailer that has turned things around. The company has focused on its customers, leading to great results during the tough pandemic times.
Customer Engagement and Digital Transformation
Chico’s FAS has worked on its three main brands – Chico’s, White House Black Market, and Soma. It’s also improved its online presence. These efforts have led to strong sales growth. By focusing on customers and going digital, Chico’s FAS is set for long-term success.
The company’s hard work is showing results. Chico’s FAS aims for $2.5 billion in sales by 2024 and expects 15% EPS growth each year. It’s doing well because it has a loyal customer base of affluent women. Right now, its shares are priced at less than 6 times forward earnings, making it a great buy.
“Chico’s FAS has implemented a customer-centric strategy that has driven impressive results, even as many other retailers struggled during the pandemic.”
Chico’s FAS is all about engaging with customers and going digital. This strategy is helping it thrive, even when the industry faces challenges. With its strong growth plans and low stock price, Chico’s FAS is a smart investment choice for those in the know.
Associated Capital Group: A Hidden Gem in Alternative Investing
Associated Capital Group (AC) is a standout in financial services, especially in alternative asset management. Mario Gabelli, with about 85% ownership, leads the company. AC excels in merger arbitrage and other strategies, showing strong returns over time.
Even with a solid track record and over $1.8 billion in assets, AC’s stock is undervalued. It trades below its true worth, offering a chance for investors to tap into alternative investing.
Consistent Performance and Positive Returns
AC’s strategies have been successful, with an average yearly return of 7.4%. They’ve been profitable in 35 of the last 37 years. This shows the company’s skill in managing alternative assets, especially merger arbitrage.
| Year | Preliminary Book Value per Share |
|---|---|
| Q3 2021 | $42.15 – $42.35 |
| Q2 2021 | $42.10 – $42.30 |
| Q1 2021 | $41.10 – $41.30 |
| Q4 2021 | Record full-year results |
| Q3 2022 | $39.81 – $40.01 |
| Q1 2022 | $41.62 – $41.82 |
Institutional investors have taken notice of AC’s success. They’ve made significant moves, showing confidence in the company.
Undervalued Opportunity
AC’s stock is currently undervalued, trading below its true worth. This makes it a hidden gem in alternative investing. It’s a chance for investors to benefit from the company’s potential growth.
“We are focused on driving value for our shareholders through prudent capital allocation, rigorous risk management, and continued investment in our core capabilities.”
– Mario Gabelli, Chairman and CEO of Associated Capital Group
With its strong leadership, proven strategies, and undervalued stock, Associated Capital Group is a gem for investors looking at alternative asset management.
Investing in Hidden Investments
Renowned investor Peter Lynch thought the average investor could find great investment chances by using their “consumer edge” and “on-the-job edge”. He suggested buying what you know, like from your daily life or work. Lynch also saw the value in cyclical stocks, saying the best time to invest is when the economy is down and people are pessimistic.
Lynch believed that even guessing when the economy will recover is hard, but the rebound in cyclical stocks can bring big returns. His advice on finding hidden gems and using your unique insights can help people find investment chances they might miss.
Peter Lynch’s Wisdom on Finding Hidden Gems
According to Peter Lynch, the average investor can find hidden gems by using their “consumer edge” and “on-the-job edge”. This means paying attention to what you use every day and the trends in your field. This way, you can spot promising investment chances that others might overlook.
Lynch also pointed out the potential of cyclical stocks. He said the best time to invest is when the economy is down and people are gloomy. Even though predicting an economic recovery is tough, the rebound in cyclical stocks can bring big gains for smart investors.
“The person that turns over the most rocks wins the game. And that’s always been my philosophy.”
By following Peter Lynch’s advice on finding hidden investments and using your unique insights, individuals can potentially find overlooked opportunities. This could lead to strong returns in the market.
Conclusion
This article looked at 6 hidden gem investments across different sectors. These investments could help investors diversify their portfolios and maybe even earn big returns. We talked about Global Water Resources, Chico’s FAS, and Associated Capital Group, among others.
These companies are not as well-known as some others, but they have a lot to offer. By using their “consumer edge” and “on-the-job edge,” investors can find these hidden gems. Peter Lynch, a famous investor, suggests this approach.
As the world changes, finding and using hidden investments will get more important. Investors can do well by spreading their money across different areas. This includes traditional investments, alternative ones, real estate, and private equity. By focusing on what they like, investors can succeed in a changing market.
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