2 Hidden Gem Stocks to Watch in October

Many stocks that are flying under the radar are there for a good reason. But sometimes, you find something interesting.

On the hunt for value? There are multiple types of undersold stocks. Some might be actively ignored and avoided by investors because of a significant underlying issue. Others might simply not gain enough attention and momentum to sell an adequate number of shares in a given period. This is an important distinction because many undersold stocks are undersold for a valid reason, and it might be wise to stay away from them.

But others, particularly the ignored ones, might include some promising picks, i.e., hidden gems that can help your capital shine.

chart reflected in eyeglass lenses

Source: Getty Images

A healthcare stock

Before cannabis stocks took over the healthcare sector and started representing a significant slice of it, companies like Bausch + Lomb (TSX: BLCO) reigned in this relatively erratic sector (more accurately, it was the predecessor company to the current Bausch + Lomb). The stock was once one of the most valuable companies in Canada, but some legal trouble a few years back caused it to lose most of its valuation.

There were several dark phases between then and where the company stands now. It’s not in a promising position per se, but now giants like Blackstone and TPG are eyeing the company as a potential acquisition. It makes sense, as Bausch + Lomb is one of the most prominent names in the eye-care segment of the healthcare market, with several prominent products to its name.

The result of this potential buyout news is that the stock — which had been mostly ignored by investors — jumped more than 33% in a matter of weeks. The growth has plateaued for now, but the stock is still worth considering.

A REIT

The TSX is home to many promising real estate investment trusts (REIT) and strangely enough, one of the best ones has properties almost exclusively in the U.S. Slate Grocery REIT (TSX: SGR.UN) has a portfolio of about 115 retail properties with an asset value of around $2.4 billion. They are spread out in 23 states, and 95% of the portfolio is anchored by grocery businesses.

The evergreen nature of the grocery business and its relative immunity to weak economies and bear markets are reason enough to consider this REIT. However, a far more compelling reason for buying this REIT is its impressive 8.3% yield. A healthy Funds From Operations (FFO) payout ratio of 74.2% (in the last quarter) endorses the financial health of its payouts.

The REIT has sustained its payouts for at least a decade. The yield is impressive and financially sound. There is practically no potential for capital appreciation with this investment, but considering its performance over the past few years, the REIT may at least sustain your capital investment and prevent you from incurring a significant loss over a long period.

Foolish takeaway

These two hidden gems are worth looking into, albeit for different reasons. The Bausch + Lomb is a relatively time-sensitive investment because once a definitive decision is made about an acquisition, the stock may shoot up virtually overnight. You can take your time with the REIT and even wait for a price dip to buy.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Slate Grocery REIT. The Motley Fool has a disclosure policy.

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