Back to top

Image: Bigstock

Finding Hidden Gems in a Hot Stock Market

Read MoreHide Full Article

Stocks are near all-time highs again, with the NASDAQ the best performing index in 2018.

Technology and social media stocks have been the main drivers of much of the bullishness.

For investors, it's been a no-brainer to own the FAANG stocks and other technology names.

Apple and Amazon have busted out to new all-time highs and are now trillion-dollar market cap companies, the first time in history any company has achieved that.

And while Apple shares are up nearly 30% year-to-date, which is beating the major indexes, would it surprise you to find out that an old school department store chain, Macy's, is outperforming Apple shares this year?

The growth stocks may be getting all the glory, but there are many hidden gem value stocks that are crushing it too.

The key is to get them into your portfolio.

How do you find these rare creatures?

First you have to know what you're looking for and then you have to have the guts to jump in.

What's a Hidden Gem Stock?

To find hidden gems, you have to know what they are.

1) They're "Hidden"

A hidden stock usually means they're less covered by Wall Street analysts. The larger the company, usually the more analysts there are on it. These stocks get all the glory and television time.

Small and mid-cap stocks often get neglected by the Street. As a result, many hidden gems are smaller cap companies.

2) They're a "Gem"

A gem is defined as something that's prized. A hidden gem, then, is something that is prized that no one knows much about.

With the stock markets soaring, gem stocks are often those that are undervalued compared to the overall market or their peers.

That was the case with Macy's, as it traded with a forward P/E as low as 5.5 in 2017 when the Street was running away from nearly all the retailers other than Amazon.

It doesn't mean they're down on their luck, though. Quite the opposite.

Hidden gem stocks are often value stocks that the rest of the market is ignoring but which still have rising earnings and strong fundamentals.

Continued . . .


ATTN Value Investors: Quality Stocks on Sale

Zacks has uncovered a few selected hidden gems that are available at "discounts" of 25-50% and more. We use earnings estimates and Zacks Rank timing to catch the best entry and exit points, sometimes riding investments for months and even years to maximize gain potential.

This approach beat the raging bull market during the past year and closed gains of +167.8%, +89.5%, and +142.8%.

Look inside the portfolio by Sunday, September 9 and you can download a revealing Special Report, Invest Like Warren Buffett absolutely free.

See Zacks' latest selected value stocks >>


How to Find Hidden Gems

It's not easy to find hidden gems.

Most investors like to follow the crowd. It doesn't take a lot of guts to buy Apple's stock. But if you bought Macy's over the last few years because you recognized that it was cheap, you would have had to tune out the naysayers who were saying that retail was doomed.

And you would have had to have patience.

Macy's is a large cap stock and well-known name. It wasn't "hidden" so much as "ignored." But other stocks are truly hidden. No one is talking about them.

What about the small-cap retailers? How do investors find them?

Or that mid-cap cabinet manufacturer that is selling a lot of kitchen cabinets now that home remodeling is hot again?

Screening for Hidden Gems

You can screen for small-cap companies and put some value and growth fundamentals in the mix. But those screens usually return a lot of stocks and you're going to miss out on the occasional large-cap stock, like Macy's, that the Street is ignoring.

If you're the type that likes to dig through a lot of earnings reports, then you can find some hidden gems this way.

But another strategy is to use the powerful combination of the Zacks Rank alongside solid fundamentals to find the best hidden gem value stocks.

That's what drives a portfolio I'm managing called Zacks Value Investor.

We look for stocks priced at "discounts" of 25%, 50%, and more. Our strategy applies Zacks Rank timeliness plus value metrics to catch these hidden gems just as analysts are upgrading their earnings estimates.

You see, it's not enough to simply find stocks that are undervalued. We want to buy them as they begin their upswings, and then ride them for months or years until they reach their full growth potential.

That's how we've closed gains of +89.5%, +167.8% and +142.8% in just this past year.

New Hidden Gem to Buy Monday

I invite you to look inside our portfolio and see our latest value buys including a fresh selection that I'm posting Monday morning. You can be among the first to get in on what I expect to be a profitable ride.

As an added bonus, you're also welcome to download Invest Like Warren Buffett free. This Special Report reveals 3 key principles that guide the legendary value investor's search for companies to buy. Even better, it spotlights 5 stocks that he might well acquire today if he were still in the process of amassing his fortune rather than just preserving it.

Important: This unique opportunity ends midnight Sunday, September 9.

Look Inside Value Investor Portfolio and Download Free Buffett Report >>

Good Investing,


Tracey Ryniec, as Zacks Value Stock Strategist, directs our Value Investor portfolio.