3 Obscure Stocks With Outsized Opportunity

By James Brumley | March 01, 2011 AAA

While one of the oldest investing adages 'buy what you know' isn't bad advice, it may not be the most fruitful advice either. Sometimes it's the obscure - almost goofy - companies in odd businesses that make for the best opportunities. Here are a few such stocks that are pretty compelling right now, even if they aren't on too many traders' radars. (Discover the risks of staying in your comfort zone in Why You Shouldn't Buy Investments You Know.)
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They Make Money Doing That?
Although the tin can has been around and has remained relatively unchanged for decades, the technology behind canned goods is far more advanced than you might think. The same goes for something as seemingly benign as glue and adhesives - the idea is hundreds of years old, but precision dispensing of the sticky stuff is a fine-tuned science that today's modern manufacturing processes couldn't exist without.

Enter Nordson Corp. (Nasdaq:NDSN), a maker of dispensing and sealing equipment with applications in all sorts of industries.

Don't laugh, because it's been a stunningly great time to be in the business. Nordson just wrapped up its best year ever in 2010, earning $4.62 per share. Better still, the company is expected to post income of $6.59 per share in 2011, up 42%, which would simply be in line with its current growth trend.

Who knew adhesive dispensers could be so profitable?

Keeping the Boats Moving
Great Lakes Dredge & Dock Corporation (Nasdaq:GLDD) isn't exactly a household name either, perhaps because most of the nation never sees what the company does, nor would they care to. Investors do, however, like to watch the cash roll in.

Although often misclassified as a construction company, Great Lakes Dredge & Dock actually maintains the shape and depth of beaches, docks, ports and waterways to make sure boats can continue to navigate them. It's a big job to be sure, and the company pulls in big bucks as a result. Plus, the bottom line is only expected to keep growing.

Simply put, many needed dredging products are long overdue. Given that Great Lakes Dredge & Dock is already the market share leader, its record 2010 margins and near-record per-share profits may well be topped again this year. The company's total backlog currently stands at $363 million, or over 50% of 2010's total top line. (For related reading on margins, see The Bottom Line On Margins.)

For Adults Only
This stock may fall closer to being described as unconventional, rather than obscure. Neither description changes the fact, however, that Rick's Cabaret International (Nasdaq:RICK), a nightclub operator that specializes in adult entertainment, has been a consistent earner in good times and bad.

The buzz is that last quarter's big earnings increase of 160% on a year-over-year basis is a sign that gentlemen's clubs are finally starting to lure back their higher-end clientèle, and these clientèle tend to spend a great deal more when they visit. If the prognosticators are right - and the numbers trend suggest that they are - RICK is a bargain at 12.2 times 2011's estimated earnings.

The Bottom Line
None of the above companies are mainstream names like General Electric (NYSE:GE), nor are any of them as sexy as, say Apple (Nasdaq:AAPL) and its new red-hot iPad 2 (well, maybe Rick's Cabaret is technically as sexy, although for other reasons). That's not a bad thing though. The challenge with owning GE and Apple is that so many eyes are on these companies, making it tough to find an edge or angle that somebody else hasn't found first. With a name like Rick's Cabaret or Nordson, it's very possible for an investor to see something most of the market hasn't figured out yet.

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