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How to Find Hidden Gem Stocks

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  • (0:30) - Finding The Hidden Value Stocks
  • (7:00) - Tracey’s Top Stock Picks
  • (20:50) - What Could Push These Stocks Higher?
  • (25:10) - Episode Roundup: MLHR, SCS, IIPR, CHS, JILL, BBBY
  •     Podcast@Zacks.com

 

Welcome to Episode #209 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Every investor wants to find that cheap, secret stock that becomes a superstar but how do you do it?

Stocks can be “hidden” because they’re out of favor on Wall Street and because they are little followed, or not followed at all, by Wall Street analysts.

Not all “hidden” stocks are value stocks. But odds are, if Wall Street isn’t paying attention, then there is likely some value to be found.

Analysts Don’t Cover All Companies

It’s important to recognize that Wall Street only has so many analysts. And with thousands of companies, that means that not every company is going to get the attention it deserves.

Wall Street analysts tend to cover companies in popular industries. They often tend to cover larger companies, as well.

This means some companies will have just one or two covering analysts, but others will have ten or more.

For example, in the retail group, Bed Bath & Beyond (BBBY - Free Report) has 9 analysts providing estimates on Zacks.com but J.Jill (JILL - Free Report) , the women’s specialty apparel retailer, has just 1 covering analyst on Zacks.com.

Recently, one industry, Business Products, has lost its sole covering analyst so there is no longer even a Zacks Rank for those companies.

That means those companies are really going to be “hidden.”

Finding Hidden Gem Stocks

One strategy for finding hidden gems is to look for companies that have less analyst coverage, either in their industry or sector.

It usually means the company is not going to be on the stock chat boards or on the trending ticker lists as often.

You have to look beyond the trends.

Sometimes industries are simply out of favor on Wall Street and that keeps a company “hidden.”

3 Hidden Gem Stocks for 2020

1.       Herman Miller is famous for its trendy office furniture but it also sells home furnishings, including couches, through its two furniture retail brands, Design Within Reach and HAY. In the fiscal first quarter, retail orders were up 40% with Home Office demand surging 300%. Office furniture sales were down year-over-year in North America but improved as the quarter went along. It’s trading with a forward P/E of just 9.4 and reinstated its dividend, which currently yields 2.3%. It doesn’t have a Zacks Rank because the only analyst on this group retired recently.

2.       Steelcase (SCS - Free Report) also doesn’t have a Zacks Rank because the analyst who retired also covered it. Like Herman Miller, Steelcase makes office furniture but it does not have the retail furnishings component. Shares are still down 43% year-to-date on worries about the recovery of the North American office market. Will Americans ever go back to their offices? It’s cheap, with a forward P/E of 8. It also restored its dividend, which yields 3.5%.

3.       Innovative Industrial Properties (IIPR - Free Report) is a REIT which targets medical-use cannabis facilities for acquisition. As of Sep 21, it owned 63 properties in the United States, of which 99.3% were leased with a weighted average lease term of 16.1 years. Even though it’s in the hot cannabis industry, Zacks.com only has 1 analyst covering the company. It trades with a forward P/E of 25.7 as shares have rallied 21.2% year-to-date.

What else do you need to know about finding hidden stock gems?

Tune into this week’s podcast to find out.

[In full disclosure, Tracey owns shares of IIPR in her personal portfolio.]

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