Editor's note: The universe of small-cap stocks is fertile hunting ground for "blind spots."

The key is knowing what to look for.

Yesterday, Stansberry Venture Value editor Bryan Beach walked readers through two of these blind spot setups. In the final installment of this exclusive interview for the weekend Masters Series, he shares the third setup... discusses how it led to his subscribers' biggest winner... and explains why these opportunities are off the radar for 99% of investors...

Why You Have a Huge Advantage Over the World's Greatest Investors

An interview with Bryan Beach, editor, Stansberry Venture Value

Sam: We've discussed the first two types of "blind spots." The third is what you call a "financial statement blind spot." Tell us about this one.

Bryan: You can also call them "balance-sheet blind spots" or "earnings blind spots." But what it boils down to is that every publicly traded company has to follow an agreed-upon set of accounting rules, called generally accepted accounting principles ("GAAP"). These rules were set up for a reason, but sometimes they're a bit misleading, even though they have good intentions. For example, sometimes a company lists an asset at a certain amount on its balance sheet for accounting purposes that might be worth significantly more.

A great example of this is real estate, which is typically put on the books and listed for the amount that a company paid for it. But if the real estate appreciates significantly, that won't be reflected in the balance sheet. That means a company's book value – meaning assets minus liabilities, essentially its net worth – might be significantly higher than the GAAP book value.

When valuing a company, analysts looking at a Bloomberg Terminal apply a multiple to book value. This "price to book ratio" is a common valuation metric, and understating an asset is a way to understate book value, which could keep a stock's price depressed.

Sam: You found one of those companies – BlueLinx (BXC), a building and industrial-products distributor – back in January and recommended it to subscribers. It quickly turned into your biggest win to date, and you told readers to sell half of the position for a gain of almost 200%. What did you see that made this stock a no-brainer?

Bryan: A key point here is that you shouldn't just buy any company whose assets are being undervalued. That's the situation with a lot of companies, and the assets can stay undervalued for years and years. What we look for is a company whose assets are undervalued and where we have reason to believe a catalyst is about to unlock that value.

Sam: In general, how can you distinguish between a value trap – whose shares drift in no-man's land for years – from a company like BlueLinx, whose blind spot could disappear soon?

Bryan: Well, every situation is different. Scheid Vineyards (SVIN), for instance, essentially needed someone with a megaphone to go out and explain what was on its balance sheet. A couple of hedge-fund managers took a position in the company and started talking about it at conferences, and that was enough to put it on other people's radars.

BlueLinx was a different scenario. It wasn't a "dark" stock, but it had a lot of valuable assets on its books that were being undervalued. It had a lot of distribution centers and real estate on its books being valued at 1960s prices.

I'll spare you the accounting details, but I could tell that management was actively unlocking that value on the balance sheet through some sale-leaseback transactions. These transactions changed the way that the accountants calculated them.

Essentially, these sale-leasebacks drastically changed the company's book value but didn't change the business at all. It was the same business with the same distribution centers, just a different way of reporting the numbers. We saw management perform about a dozen of these sale-leasebacks. We knew that the company was gradually unlocking its hidden values and using the proceeds from these sale-leasebacks to pay down debt.

We saw what was happening and we knew the effect these moves would have on BlueLinx's balance sheet. We also knew that by March, the official GAAP financials would finally reflect some of these huge transactions. Once that happened, it was obvious that the market would wake up to the true value that had been trapped in the company's financial statements.

Sure enough, the market realized, "Wow, these guys have been unlocking all of this value." If you hadn't been following the story or you were just looking at the numbers in Bloomberg, you would have missed it. It wasn't until March that the rest of the market realized what had happened. That's when the company filed a statement that really showed the power of this deleveraging.

Sam: There was another factor at play with BlueLinx, though. The company bought one of its competitors, right?

Bryan: Right. In mid-March, BlueLinx bought its main competitor – Cedar Creek – at a great price. BlueLinx instantly doubled its cash flows. The best part was, it didn't have to take on a significant amount of debt to close the deal. It became a "two companies, one ticker" situation like we were talking about yesterday. Within a couple of weeks, shares nearly tripled.

It didn't take long for the market to notice that BlueLinx had made a fantastic acquisition that was going to significantly improve its prospects over the next several years. And investors were also beginning to realize that the sale-leaseback transactions were dramatically increasing the company's book value.

We were fortunate to get in right before those things happened. That's the kind of situation we're looking at... And they aren't all going to end up doubling or tripling quickly like BlueLinx did. In fact, most of them won't. But the point is – and I want to really emphasize this – BlueLinx was a big company, but because of a balance-sheet blind spot, it looked like a small company. We knew the market was going to realize this one day... and we got in just in time.

Sam: In last month's issue of Venture Value, you recommended another company that could be considered a balance-sheet blind spot. Tell us a little about it.

Bryan: We think this company is going to experience a cash windfall that isn't directly related to its primary business. We've been following this company for a while. Financially, it's a strong company, but it's winding down its main line of business. The windfall we're expecting isn't reflected anywhere in the balance sheet. Not as a receivable, nothing. But by the end of the summer, we expect another $100 million to $200 million in cash on its financial statement.

Of course, you can't find this kind of thing with a Bloomberg screen. You have to be paying close attention. We happened to be watching the right place at the right time. But the best part is, even if we're wrong and the company doesn't get that windfall, we have plenty of downside protection... Because the market is assigning a fair value to the company and its current prospects, but it's not factoring in the windfall.

This is the kind of thing you only see when you're researching small-cap stocks. The fact of the matter is, Wall Street doesn't have time to do its due diligence on every publicly traded stock.

Sam: And I'd imagine that for blue-chip companies like Walmart (WMT) or Amazon (AMZN), it would be tough to find a blind spot, given how many people cover those companies. People know those companies like the back of their hand.

Bryan: Sam, Wall Street analysts are smart people.

And I'm not saying we're smarter than them, but we're able to focus on the types of companies that they can't focus on. There's no reason for any Wall Street firm of analyst to cover a company with a $90 million or $100 million market cap. But those are exactly the kinds of companies I get to cover for my Venture Value readers. I'm not using some special system. I'm no stock market genius. I'm just able to look at companies that the big boys on Wall Street aren't allowed to. My readers have done well following me as I discover these companies.

Sam: Bryan, you've been very generous with your time, but I do have a couple more questions about these blind spots. For one, how did you first discover this idea in the first place? Was it a certain company or situation that you saw that made a lightbulb go off in your head and led you to this idea?

Bryan: Absolutely. It was actually the restatement I was telling you about yesterday. Remember, I lived and breathed this for three or four years. I couldn't believe that while my company was making money hand over fist, the stock was dropping 60%... 70%... 80%... 90%.

As a business operator, that surprised me. But as an investor, I understood exactly why it was happening. If I were an investor with no knowledge of this company or its prospects, how would I know that the cash is rolling in the door? How would I know that we just signed up our two biggest customers ever? We couldn't release that information, so investors couldn't see that information.

I began to wonder how many businesses out there were in a similar position – hampered by a blind spot that the market couldn't see. I wondered if there was a way for me to find them and invest in them. Ever since joining Stansberry Research, I've been able to refine my approach and find these kinds of companies. And as we've discussed, I'm not only limited to companies that are filing restatements. That's just one of several ways to find opportunities like this.

Sam: In general, why are these opportunities off the radar for most individual investors? Why do people continue to miss these kinds of companies?

Bryan: There are a couple of reasons why.

For individual investors, the investment universe is too big for them to get their arms around all of these companies. Again, there are thousands of small-cap companies out there... and you need tools like reliable financial screeners like Bloomberg to even get them all in one place. As we've discussed, those screens have holes. They have blind spots. They can't see everything.

As for institutions and Wall Street investors, there's no reason for them to cover these small companies, because they make money doing big deals for big companies. They make money providing advice to big investors, and big investors can't touch a micro-cap or small-cap company. Wall Street firms are set up to research and serve multibillion-dollar companies. It doesn't do them much good to focus on unusual situations in small companies.

Sam: Lastly, did you develop a system of some kind for identifying these kinds of opportunities?

Bryan: No. The fact of the matter is, if there was a way to systematically find these things, someone would have figured that out by now... and the market wouldn't be blind to these companies.

I know I'm not the only person who has noticed all of these companies, but I am the guy who is probably looking for them harder than most. I have watch lists tracking these dark companies and companies going through restatements, and I've developed a few tricks to finding them.

Some smaller hedge funds have brilliant analysts who look for these kinds of situations. I'm part of that network, and keep in touch with some of those guys, and I'm able to bring my Venture Value readers these types of opportunities by keeping my eyes and ears open. My team and I are getting better at exposing these blind spots. We don't have an exact system and I'm sure we haven't uncovered every single one, but we don't need to know them all. We just need a handful of great ideas per year to generate huge returns for our readers.

Sam: Thank you so much for taking time with us, Bryan. It was interesting hearing about all of these blind spots, and we're all looking forward to reading more of your research on the topic.

Bryan: Thanks, Sam. It has been my pleasure.

Editor's note: Bryan says these little-known stocks are among the best opportunities in the market today...

In fact, he has just prepared a brand-new report – "Dark Stocks: The Powerful 'Blind Spots' That Could Make You 200% or More This Year" – that details his five favorite opportunities right now. You can get instant access to this report – and all of Bryan's exclusive small-stock research – with a subscription to Stansberry Venture Value.

Bryan believes the first of these "dark stocks" could jump as much 185% in just the next several months... meaning this single opportunity alone could more than pay for the cost of your subscription. Better yet, if you agree to try Venture Value for yourself today, you'll receive an entire bonus year of access absolutely free. Learn more here.