12 of the Best Stocks You Haven't Heard Of
The market is peppered with undiscovered gems boasting stable fundamentals and cheap valuations. Here are 12 of the best stocks flying under the radar.
When investors seek out the best stocks to buy, many assume that finding an undiscovered gem is simply out of the question. After all, legions of Wall Street analysts closely watch a wide swath of U.S.-listed companies every single day.
But they don't watch them all.
Of the roughly 8,900 stocks trading on U.S. exchanges last year, data services firm Multex found that only about 3,100 stocks – or 35% – are followed by at least one analyst. The remaining 65%, or approximately 5,800 stocks, have no analyst coverage whatsoever.
Why are the majority of public companies overlooked by Wall Street? The reasons often have nothing to do with the company's quality or growth prospects. For instance, firm size generally determines the level of analyst coverage. That is because institutional customers of Wall Street banks take big positions and aren't necessarily interested in stocks with thin floats or small market caps.
Investment banking fees also play a key role in determining which stocks are covered by analysts. Wall Street research firms rely on banking fees for a substantial portion of their revenues. A small, lesser-known company is much less likely to undertake debt or equity offerings that require an underwriter and generate investment banking fees, leaving little incentive for Wall Street firms to provide research coverage for the stock.
But some of these underfollowed names can turn out to be the best stocks you can buy. Neglected equities are sometimes undervalued and can begin to generate outsized returns once they land on investors' radar. There is even a name for this phenomenon: the "neglected firm effect." One study looking at well-covered S&P 500 stocks versus neglected ones over a nine-year period found that the neglected stocks generated 16.4% average annual returns versus returns of only 9.4% for the broadly covered stocks.
Here are 12 of the best stocks that have been virtually ignored by Wall Street. Each of these companies is profitable. Most are bargain-priced, and most sport excellent balance sheets. And in some cases, they even pay dividends.
Data is as of Nov. 1. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analysts' opinions courtesy of S&P Global Market Intelligence.
Universal Health Realty Income Trust
- Sector: Real estate
- Market value: $806.4 million
- Dividend yield: 4.8%
- Wall Street analysts: 0
Universal Health Realty Income Trust (UHT, $58.50) invests in medical office buildings, hospitals, behavioral health centers and other healthcare assets. This small, resilient medical real estate investment trust (REIT) flies under the radar of most investors, but packs a big wallop thanks to 35 straight years of dividend growth and a rich 4.8% dividend.
Universal Health owns 72 healthcare properties across 20 states. Over 70% of its portfolio consists of medical office space, with holdings concentrated in faster-growing Western states like Texas, Nevada and Arizona. This REIT is partially owned and externally managed by its largest tenant, Universal Health Services (UHS), one of the country's largest for-profit healthcare systems. UHS leases account for approximately 36% of the UHT's revenues.
While not as fast-growing as some other healthcare REITs, Universal Health remained resilient during the pandemic, expanding its portfolio and boosting FFO (funds from operations – a key REIT earnings metric) per share by 5% last year.
The REIT's FFO per share improved 10.4% year-over-year during the first nine months of 2021 to $2.76. Universal Health also acquired a Las Vegas medical office property that is 100% leased, announced plans to sell two vacant properties and exchanged a hospital property at its Inland Valley campus for two other properties.
There is some risk from a Chicago hospital property that is losing its tenant at the end of 2021. This property currently represents approximately 2% of the REIT's revenues.
Another risk comes from long-term debt of $334 million and 66% of capital. However, the REIT improved financial flexibility in July by extending its debt maturities through July 2025.
UHT has been hit hard in 2021, down 9% for the year-to-date. But the REIT could be one of the best stocks on an upswing, with shares up nearly 6% from their late-September lows.
Tiptree
- Sector: Financial services
- Market value: $532.6 million
- Dividend yield: 1.0%
- Wall Street analysts: 0
Tiptree (TIPT, $15.71) underwrites specialty insurance through its Fortegra Insurance subsidiary and also has mortgage, asset management and bulk shipping operations as part of its Tiptree Capital business. Fortegra writes commercial policies for professional liability, inland marine and contractor's equipment and personal lines of insurance covering storage units and manufactured housing. Insurance is sold through a network of 15 offices across four countries. Last year, Fortegra expanded into warranties by acquiring Smart AutoCare and grew its operational presence in Europe.
Tiptree Capital offers residential mortgages through Reliance First Capital, makes shipping-related investments through Tiptree Marine, and owns stock in Invesque, a publicly listed Canadian senior housing REIT. The insurance, mortgage and shipping-related investments have been robust performers, but Invesque has been a drag on earnings.
Tiptree's adjusted earnings have risen steadily since 2017 and the company's book value per share plus dividends has grown 9% annually since its 2007 initial public offering (IPO).
A stellar performance from Fortegra Insurance fueled 25% adjusted net earnings growth and 18% book value per share gains for Tiptree during the June quarter. Fortegra Insurance achieved a record $2.0 billion of trailing 12-month gross written premiums, the result of 24% annual premium gains since 2017.
The company had planned to spin off Fortegra in an April IPO, but the deal was pulled for unspecified reasons at the last minute.
TIPT plummeted to around $10 in the wake of the pulled IPO, but it has been one of the best stocks on the chart recently, up 69.8% from its late-September lows near $9.25.
IES Holdings
- Sector: Industrials
- Market value: $1.1 billion
- Dividend yield: N/A
- Wall Street analysts: 0
IES Holdings (IESC, $50.51) owns businesses that provide industrial products and infrastructure services to data centers, residential homebuilders and commercial and industrial facilities. The company specializes in electrical and mechanical contracting and services.
IES Holdings has generated 16% yearly sales gains and 22% annual income growth since 2015 both organically and through acquisitions. During that period, the company closed 15 acquisitions that enhanced its scale and operating margins.
Due to its mix of services and end-markets, IES Holdings is well-positioned to benefit from the building boom in data centers and warehouses, strong demand for residential housing in its key geographic markets of Texas, Florida, Arizona and Georgia, and an enhanced focus by its utility customers on decarbonization and electrical grid stability.
Despite COVID-related shutdowns, IES increased profits last year and used its robust free cash flow (the cash remaining after a company has paid its expenses, interest on debt, taxes and long-term investments) for acquisitions, share repurchases and debt repayment.
The impact of industry-wide supply chain constraints and higher material costs were more than offset by strong demand in all four of its business units during the June quarter and IES Holdings delivered 38% year-over-year sales growth and 62% adjusted earnings per share (EPS) gains. The company ended the June quarter with $825 million of backlog, roughly equivalent to six months of sales.
One reason that this company may fly beneath the radar of Wall Street investors is its unusually high level of insider ownership. IES Holdings CEO Jeffrey Gendall owns just over 50% of the stock. The small share float may be an issue for fund managers, but it is no obstacle for retail investors who don't mind the potential risk of additional volatility (low float stocks tend to experience bigger price swings than their higher-float peers).
Associated Capital Group
- Sector: Financial services
- Market value: $1.5 billion
- Dividend yield: 0.5%
- Wall Street analysts: 0
Associated Capital Group (AC, $36.74) provides alternative asset management services through a related entity, Gabelli & Co. Investment Advisors. The company was formed through a spin-off from GAMCO Investors (GBL) in 2015. Founder and manager Mario Gabelli is a legendary value investor and a member of Barron's All-Century team of the all-time best mutual fund portfolio managers.
After many years of being out of favor, value investing staged a strong comeback in 2021 and many think this investing style will remain en vogue as the world economy recovers from COVID. Value strategies have always been popular with long-term investors like Warren Buffett who has relied on value investing to amass his considerable wealth.
Associated Capital invests directly and through SPACs (special purpose acquisition companies) in leveraged buyouts and restructurings, primarily of small and mid-sized businesses and has plans to introduce more SPACs this year. The company ended the June quarter with assets under management totaling $1.6 billion, up $260 million year-to-date as a result of $185 million of net fund inflows and $75 million of capital appreciation.
AC received a big cash infusion in August from the liquidation of one holding that nearly doubled in value over 12 months. The company received a $45 million partial payment in August and will receive the $15 million balance during the December quarter.
At present, opportunities in the company's event-driven style of investing are exceptional. Merger and acquisition activity has reached record levels and is up 131% year-to-date in 2021 to $2.8 trillion. Low interest rates, substantial deployable capital held by investment firms and companies all looking to improve their competitive positioning point to continued strength in the mergers and acquisitions market.
Associated Capital's investment portfolio generated $79.3 million of income during the first six months of 2021, which fueled $2.18 in EPS, up $3.88 year-over-year. The company's book value per share increased by 10% to $42.21 and is above the current share price.
Since its 2015 spin-off from GAMCO, Associated Capital has returned $152.2 million to its investors through share repurchase and paid $25 million of dividends. The company pays a small semi-annual dividend yielding 0.6%.
AC is one of the best stocks in terms of valuation, priced at 7.8 times earnings, which is a 31% discount to its peers.
Cass Information Systems
- Sector: Industrials
- Market value: $608.6 million
- Dividend yield: 2.7%
- Wall Street analysts: 0
Cass Information Systems (CASS, $42.54) provides information and payment processing tools that help companies manage facility costs, freight expenses, telecom and IT spending and other business necessities. Cass dispenses more than $60 billion of payments annually on behalf of its customers and is supported by Cass Commercial Bank, which holds over $2 billion of assets.
The company's largest business lines are freight auditing and payment processing. It provides these services for PepsiCo (PEP), Caterpillar (CAT), Emerson Electric (EMR) and dozens of other Fortune 500 companies. Telecom and IT expense management is also a major business line, with customers that include BP (BP), Hewlett Packard (HPE), Johnson & Johnson (JNJ) and McDonald's (MCD).
Banking subsidiary Cass Commercial Bank specializes in customized services for faith-based ministries and McDonalds' franchisees. The bank also serves businesses in the greater St. Louis area, its home market.
The company's consistently rising sales and EPS were interrupted during the pandemic, when sales dropped 7.8% year-over-year and earnings per share fell 16.4%. However, the company remained solidly profitable and improved book value per share by 8% in 2020.
In 2021, Cass is benefitting from a resurgence in freight volume and new business wins in its freight auditing and telecom management business lines. Revenue rose 8% year-over-year during the September quarter and EPS improved 18%.
Cass is one of the best stocks in terms of shareholder payouts, having continuously paid dividends since 1934. It has also grown the dividend 4% annually over five years. At present, the yield is 2.7%.
Diamond Hill Investment Group
- Sector: Financial services
- Market value: $704.1 million
- Dividend yield: 2.0%
- Wall Street analysts: 0
Active fund manager Diamond Hill Investment Group (DHIL, $222.00) invests in U.S. and international equities, fixed income and alternative assets. The firm manages 11 different funds and has an investing approach that is long-term and value-based. Diamond Hill was founded 20 years ago and currently manages $29.2 billion in assets.
The company's primary source of income is management fees. Diamond Hill attracted $220 million of fund inflows during the third quarter, up 124.5% from the year prior. EPS during the three-month period rose 143.3% to $8.03 per share.
Regular quarterly dividends are new in 2021 but Diamond Hill has a 14-year history of paying out large annual special dividends. Special dividends have been steadily rising since 2013 and totaled $8 in 2018, $9 in 2019, $12 in 2020 and most recently, $19 per share in 2021. As such, investors could be realizing a phenomenal 12% yield on DHIL shares this year.
Dividends are supported by a stellar balance sheet that shows cash totaling $68.50 per share or roughly one-third of the company's recent share price.
DHIL has been one of the best stocks on the charts in 2021, too, up 48.7% for the year-to-date. Still, shares are relatively cheap, trading at just 10 times earnings – a discount to both its financial sector peers and the company's average five-year historical price-to-earnings (P/E) multiple.
Marine Products
- Sector: Consumer cyclical
- Market value: $428.3 million
- Dividend yield: 3.8%
- Wall Street analysts: 0
Marine Products (MPX, $12.60) is a leading manufacturer of recreational power boats and holds the #1 market share for outboard boats in its size range. The company has been manufacturing powerboats for over 55 years and offers two brands: Chaparral sterndrive boats, which are sold through 135 domestic dealers, and Robalo outboard motorboats distributed through 125 U.S. dealers.
This steady eddy has generated 3% annual sales growth, 4% yearly earnings gains and an 18% average return on invested capital over the past 20 years.
COVID-19 sparked a surge in recreational boating as Americans fled large cities for less-crowded areas and embraced outdoor activities that allow social distancing. Over 30% of retail boat purchases over the past year have come from first-time boat owners. Industry order backlogs are at record levels with most boats pre-sold at the retail level.
Reflecting these trends, Marine Product's sales soared 46% in the first six months of 2021 over the same period in 2020 and EPS more than doubled from 17 cents per share to 41 cents per share. This growth continued in the third quarter, too, where MPX reported a 10.3% year-over-year rise in revenue and a 5.3% gain in earnings per share.
Marine Products has been paying quarterly dividends for most of the last 20 years and began paying special cash dividends in 2012. The company's regular quarterly dividend has been raised twice already in 2021 – with hikes of 25% in January and 20% in April. Its dividend is well-covered by a debt-free balance sheet showing $9 million of cash.
While this is down from the $29 million MPX had at the end of the second quarter, in the earnings call, Chief Financial Officer Ben Palmer said this is due to supply chain bottlenecks which have eased. "Our cash balance will be increasing during the coming months," he added. As for MPX's dividend yield, it is attractive at 3.8%.
Admittedly, MPX has not been one of the best stocks on the charts, down 13.3% year-to-date. However, it does have the wind at its back off the charts and is currently valued at less than 16 times earnings – well below the company's five-year historical average P/E multiple.
Retractable Technologies
- Sector: Healthcare
- Market value: $323.1 million
- Dividend yield: N/A
- Wall Street analysts: 0
Retractable Technologies (RVP, $9.50) makes syringes, IC catheters and blood collection devices incorporating the company's patented EasyPoint technology, which minimizes the chance of needlestick injuries by automatically retracting the needle after the injection. Needlestick injuries are a major risk for healthcare workers, occurring more than 320,000 times annually in the U.S. and putting workers at risk of contracting HIV/AIDs, hepatitis and other bloodborne diseases.
Demand for the company's patented needles and syringes soared during the pandemic. The U.S. government is now Retractable Technologies' largest customer. The company secured an $84 million order from the U.S. Department of Health and Human Services in May 2020, which was followed by a $54 million contract in February 2021. The company also secured $54 million in government funding last year to finance expansion of its domestic manufacturing capacity.
As a result of these contracts, Retractable Technologies unit sales grew 74% in 2020, with the U.S. government accounting for 39% of revenues. Net sales nearly doubled year-over-year to $81.9 million and EPS rose roughly tenfold to 80 cents. Performance has remained strong in the first six months of 2021, with sales quadrupling year-over-year to $92.6 million and EPS climbing to 83 cents from 11 cents the year prior.
The company's business expansion has not come at the expense of the balance sheet. Retractable Technologies has $22.4 million of cash versus just $2.0 million of long-term debt.
It's important to point out that RVP can be volatile. In June, shares jumped 23% after the U.S. government extended its February 2021 contract through mid-February 2022, which increased the contract value to $92.8 million. Shares rose another 10% just days later on news of a $10-million share repurchase and the payment of preferred dividends that had been in arrears on its Class B Convertible Preferred stock.
Another potential risk is that the company's sales and EPS could drop as COVID-19 abates, which may be a reason for high short interest (17.4%) in the stock. However, others believe RVP still has room to run due to COVID variants creating the need for booster shots.
As for valuation, RVP shares trade at a lowly 6.3 times earnings and a sizable discount to the healthcare sector.
Seneca Foods
- Sector: Consumer defensive
- Market value: $457.3 million
- Dividend yield: N/A
- Wall Street analysts: 0
Seneca Foods (SENEB, $51.65) packages fresh fruits and vegetables under private labels and its own regional brands, which include Seneca, Libby's, Aunt Nellie's and Green Valley. The company also packages Green Valley and Del Monte vegetables under contract packing agreements. Seneca Foods sources food from over 1,600 farmers, packs in 29 facilities and manages all aspects of production, from producing seeds to harvesting crops, manufacturing containers, packaging and distribution.
Dine-at-home trends during the pandemic were a boon to Seneca Foods' fiscal 2021 revenues and earnings. Sales rose 10% and EPS from continuing operations more than doubled to $13.72 from $5.46.
While sales returned to pre-pandemic levels during the July quarter, Seneca Foods generated $1.56 of earnings per share, its highest quarterly EPS in several years excluding the pandemic. The July quarter revenue decline also reflects the divestiture of the company's prepared food business last year, which accounted for roughly 8% of sales.
Seneca Foods used the generous cash flows it generated during the pandemic to strengthen its balance sheet. Long-term debt was reduced from $266 million in March 2019 to $94 million in June 2021, with net debt now standing at just 1.0 times EBITDA (earnings before interest, taxes, depreciation and amortization).
Food packing is a mature industry and Seneca Foods and its competitors rely on acquisitions for market share gains and sales growth. This company has plenty of dry powder for acquisitions, with $60 million of cash and $400 million of borrowing capacity.
SENEB shares trade at an ultra-low 4 times earnings and cash flow – suggesting it's one of the best stocks to buy for valuation. Insiders signal their confidence in the future by owning more than 10% of SENEB stock.
Miller Industries
- Sector: Consumer cyclical
- Market value: $420.0 million
- Dividend yield: 2.0%
- Wall Street analysts: 0
Miller Industries (MLR, $36.81) is the world's largest manufacturer of tow trucks, car carriers and vehicle recovery equipment. The company markets its products under the Vulcan, Century, Challenger, Champion and other brand names. Miller manufactures tow truck bodies and installs these on truck chassis purchased from third parties. Manufacturing is done at six plants and sales are made through a worldwide network of independent distributors.
The company's revenues and earnings fell last year due to pandemic-related business shutdowns, but Miller Industries rebounded strongly in 2021. June quarter sales rose 41% year-over-year and EPS increased 12% despite industry-wide supply-chain disruptions.
Longer-term trends show that Americans are keeping their vehicles longer; the average car owner owns their vehicle for 12.1 years compared to 9.6 years in 2001, according to IHS Markit. Longer holding periods are the result of rising car prices and improved vehicle quality and are contributing to greater demand for tow services as older vehicles are more likely to break down.
Miller Industries was consistently profitable and increased EBITDA seven years in a row prior to the pandemic. The company has paid a cash dividend since 2010. Payout is modest at 29% and Miller has an excellent balance sheet showing no long-term debt and $54 million of cash. The company's 72 cents per share annual dividend yields 2.0%.
MLR stock trades at 9.8 times cash flow, a more than 34% discount to industrial sector peers and 37% below the company's five-year historic average price-to-cash flow multiple.
Investors Title
- Sector: Financial services
- Market value: $372.0 million
- Dividend yield: 1.0%
- Wall Street analysts: 0
Investors Title (ITIC, $196.41) provides title insurance for residential, commercial and industrial properties, as well as tax-deferred real property exchange services through a business subsidiary. The company underwrites title insurance in 44 states and the District of Columbia, but derives the majority of title insurance premiums from policies it writes in Texas, Georgia, North Carolina and South Carolina.
Title insurance is purchased when properties are bought or sold to protect the new property owner from undisclosed tax liens, assessments or other title defects. Demand for title insurance is closely tied to the housing market. Investors Title is enjoying strong growth due to the near-record pace of existing home sales in 2021, fueled by continued low mortgage interest rates and a high volume of refinancing activity.
Investors Title's revenues increased 71% year-over-year during the first six months of 2021 and earnings soared to $17.70 per share from $3.95 per share. Most experts anticipate the real estate market will stay active in the second half of 2021 and Investors Title is anticipating a second consecutive year of record growth for the title insurance industry and presumably, for the company, as well.
Investors Title boasts a stellar balance sheet showing $2.5 million in long-term debt and $213 million of cash and investments. The company has paid regular cash dividends since 1989 and grew its dividend 21% annually over five years, including a 4.5% increase in early 2021. Shares yield 1.0%.
Even better, Investors Title is one of the best stocks to buy if you want additional payouts. The company has a history of paying large special dividends, generally during November. The special dividend totaled $10.60 per share in 2018, $8.00 per share in 2019 and $15.00 per share in 2020. Given the outlook for record 2021 EPS, another large special dividend appears likely this year.
ITIC shares are valued at 10.8 times cash flow which is 19% below the company's five-year historic average cash-flow multiple.
Preformed Line Products
- Sector: Industrials
- Market value: $332.8 million
- Dividend yield: 1.2%
- Wall Street analysts: 0
Preformed Line Products (PLPC, $67.82) makes cable anchoring and control hardware, fiber optic and copper splice closures, and high-speed cross-connect devices used by customers in the telecommunications, energy, utility and solar industries. The company operates in more than 100 countries worldwide.
PLPC has delivered 19% annual EPS gains over the last five years by taking advantage of the rising investment by its customers in telecom infrastructure and the electric grid. Infrastructure spending is rebounding after a brief hiatus during the pandemic and Preformed Line Products grew revenue 11% year-over-year in the first nine months of 2021.
The company benefits from telecom industry spending on 5G rollouts, which tech research firm Gartner estimates to hit $23.3 billion in 2022 – up 68.9% from 2019. Plus, there is $27 billion of planned investments in the U.S. electric grid as part of the Biden administration's infrastructure bill.
Preformed Line Products pays an annual dividend of 80 cents per share that has held steady since 2002. Payout at 13% suggests an ultra-safe dividend and the company boasts a prudent balance sheet showing long-term debt at just 13.5% of capital. Dividend yield is 1.2%.
PLPC stock trades at only 10 times cash flow which is a 31% discount to its industrial peers. A positive signal is aggressive share accumulation by insiders, who now own more than 39% of the stock.
