3 Hidden Gem Stocks to Buy for Maximum Returns

A rule of thumb in investing is to buy out of fear and sell out of greed. It may sound simple, but it’s not uncommon to see investors panic selling and buying during the euphoria. Another rule of thumb in investing is to avoid attention-grabbing stocks. In general, these stocks are quite valued or overvalued. Investors should look for hidden gem stocks to buy for multiple returns.

In a sea of ​​blue chips and growth stocks, many quality names are ignored. This results in a valuation gap for these shares. As money flows from overvalued stocks to these hidden gems, the rally can be significant in record time.

I focus on hidden gem stocks to buy with a five-year investment horizon. I believe these stocks can generate returns at a CAGR of 50% during this period.

Let’s discuss the reasons that make these stocks attractive at current levels.

Amdocs Limited (DOX)

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Amdocs (NASDAQ:DOX) has increased by 15% over the last 12 months. The stock, however, looks undervalued with a forward price/earnings ratio of 15.6. DOX stock also offers investors an attractive dividend yield of 1.9%, and I expect healthy dividend growth in the years ahead.

In summary, Amdocs provides software and services to the media and communications industry globally. Last year, the company reported revenue of $4.58 billion.

In the first quarter of 2023, the company recorded a record 12-month revenue backlog of $4.1 billion. This provides clear visibility into cash flow. For the year, the company expects to generate free cash flow of $700 million.

With new 5G services monetizing and supporting new 5G use cases, business growth is likely to remain healthy. Another important point is that the company reported 75% recurring revenue in 2022. Recurring revenues will continue to grow as the customer base expands and service offerings expand. This will help increase the EBITDA margin.

MakeMyTrip (MMYT)

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The tourism sector has been among the hardest hit during the pandemic. As the sector makes a comeback, now is a good time to accumulate quality stocks. MakeMyTrip (NASDAQ:MMYT) is among the hidden securities to buy in the sector.

In summary, MakeMyTrip is an online travel agency with India as its target market. The country has a burgeoning middle class and the tourism industry has seen healthy growth following the pandemic. To put things into perspective, India will probably have 300 million middle-income households by 2030.

It should be noted that MakeMyTrip has experienced operating level losses since fiscal 2018. However, the company reported profits last year and the operating margin improved further during the fiscal year. 2023. With operating leverage, margin improvement is expected to continue.

MMYT stock is up 19% over the past 12 months. I believe the best part of rallying will still come in the next few years.

Lithium Americas (LAC)

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Lithium Americas (NYSE:LAKE) the stock is among the best hidden gem stocks to buy. The rating indicates that the title has not received the attention it deserves.

Currently, the market values ​​the company at $3.1 billion. The company’s Thacker Pass asset has a net present value after tax of $4.95 billion. Additionally, the Cauchari-Olaroz asset (44.8% stake) in Argentina has a life of 40 years and is expected to generate an average annual EBITDA of $308 million. Clearly, the LAC stock is massively undervalued.

It should be noted that Lithium Americas has already started construction at Thacker Pass. A cash injection of $650 million from General Motors (NYSE:GM) ensures that there are no headwinds when it comes to financing.

Lithium Americas will also split the company into two entities. Lithium Americas will focus on assets in the United States, and Lithium International will focus on other assets. I expect a valuable release from this split which is likely in 2023.

As of the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.