3 Stocks Wall Street Hasn't Heard Of Yet
Wall Street has a bad habit of focusing only on the largest and most interesting stories. That means that smaller, and sometimes boring, companies don't always get the analyst attention they deserve -- and that can spell opportunity if you are willing to do the extra legwork to get to know some unknown names. Three Motley Fool investors came up with these stocks to start you off with today: Hardinge Inc. (NASDAQ: HDNG), OrganiGram Holdings, Inc. (NASDAQOTH: OGRMF), and Osisko Gold Royalties Ltd. (NYSE: OR).
Get in on the ground floor
Rich Smith (Hardinge Inc.): How do you find a stock that Wall Street is unaware of? That's hard to say for sure -- Wall Street is a big place. But if you're looking for a stock that it may have heard of but isn't paying much attention to and that may consequently be mispriced, that's a bit easier. Just screen for stocks with absolutely no analyst coverage whatsoever.
Wall Street doesn't cover all of the interesting stocks. Image source: Getty Images.
Utilizing the screening tools at S&P Global Market Intelligence, I recently conducted such a search and one name that popped up is Hardinge Inc. (See? Bet you haven't heard of it before, either). This tiny manufacturer of machine tools operates in Elmira, New York, and has a market capitalization of only $240 million -- too little for many bankers on Wall Street to bother with.
That's their loss, though, because Hardinge stock is up a whopping 54% over the last year, and could climb some more. With $9.7 million in trailing profit, Hardinge stock sells for a P/E ratio of less than 25, and is actually even cheaper than that. Free cash flow at the company exceeds reported net income by nearly a factor of two -- $18.5 million -- and cash that's accumulated on the balance sheet from this strong free cash flow reduces Hardinge's enterprise value to just $200 million, giving the stock an EV/FCF ratio of just 10.8.
That sounds like a pretty cheap stock to me -- and Wall Street hasn't even heard of it yet.
Weeding out a truly unknown stock
Sean Williams (OrganiGram Holdings, Inc.): Though you'd pretty much have to be completely oblivious to not have noticed the astronomical gains seen in marijuana stocks since the beginning of 2016, investors' focus within the weed space often narrows to just a handful of companies. Chances are that you or Wall Street haven't heard of New Brunswick, Canada-based OrganiGram Holdings before -- but it just might be the most appealing of all marijuana stocks.
Like all Canadian cannabis growers, OrganiGram is preparing for the expected legalization of recreational marijuana, with sales commencing sometime in either August or September. For OrganiGram and its peers, this means fast-paced capacity expansion. What's unique about OrganiGram is that it's expanding its operations solely at one site: its Moncton facility. In doing so, it's keeping costs considerably lower than many of its peers, which have their grow sites spread throughout a province, or even Canada.
In terms of production, the company recently announced an even more aggressive expansion of Moncton following significantly better-than-predicted yields. Having just a few months ago expected to peak at 65,000 kilograms of annual production, the company now anticipates producing a run rate of 113,000 kilograms of dried cannabis per year, once the expansion is completed in April 2020. Though production figures have been exceptionally fluid, this likely ranks OrganiGram between No. 5 and No. 8 in aggregate annual production.
OrganiGram Holdings has also made a sincere effort to focus on growing its cannabis oil operations. Though oils are a niche product that narrows the potential consumer pool, they command a significantly higher price point and much better margins than dried cannabis. In the company's fiscal second quarter, it sold 552,000 milliliters of cannabis oil, which was practically quadruple what it sold in the prior-year quarter. This focus on oils should allow OrganiGram to boast better margins than many of its peers.
Ultimately, OrganiGram has one of the lowest forward price-to-earnings ratios at 35, and it'll likely grow sales by a triple-digit percentage in each of the next two or three years. Plus, with big growers itching to add production, OrganiGram may even find itself on the auction block in due time. It's not a company you or Wall Street may know now, but you soon will.
A gold royalty stock for aggressive investors
Reuben Gregg Brewer (Osisko Gold Royalties Ltd.): Although most precious metals investors have heard of the major royalty and streaming companies, there is a relatively small industry player that's worth a look: Osisko Gold Royalties. With a market cap of $1.6 billion, it's less than a fifth the size of peer Royal Gold, Inc., the smallest of the big three in the industry. What separates Osisko is growth.
Osisko's gold equivalent ounce (GEO) production increased a massive 55% in 2017. It's projecting a 35% increase in 2018. Scale is important here, since Osisko's total GEO production is a fraction of what its giant peers generate. However, Osisko is still expanding swiftly at a time when production at larger Royal Gold, Wheaton Precious Metals, and Franco-Nevada looks set to slow.
There's another big difference at Osisko to note, however. While the company dedicates about 75% of its time to streaming and royalty deals, 25% of management effort goes toward direct investments in mining companies. Osisko calls this segment its "accelerator business." The idea is to help get projects off the ground by directly financing mining companies. This is much more aggressive than the streaming model, as it exposes Osisko to the ups and downs of mining -- which streaming is meant to avoid. The list of investments here also includes an interesting name: Osisko Mining, Inc. This suggests that management's attention may be a bigger issue than it wants you to believe.
In the end, Osisko Gold Royalties isn't a good choice for risk-averse investors, which is where I fall. However, more aggressive types might want to get to know this fast-growing streaming company and its relatively large 1.6% yield.
Time to do some digging
Boring industrial name Hardinge is flying under the radar on Wall Street, but it looks cheap today and appears to have solid growth potential. Canadian Marijuana stock OrganiGram has an interesting story, but the larger names in the space are getting all of the attention -- an oversight that could spell opportunity for your portfolio. And tiny Osisko is growing fast in an industry where the big Wall Street covered names are slowing down. If you are looking for underfollowed opportunities, all three are worth a deep dive today.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
