5 Top Microcap Stocks

Hey there, Fools. We're back again to help you identify some of the most attractive microcap stocks worthy of your investment dollars. Just as a reminder, we do this because:

1. Underfollowed micro-cap companies offer great returns -- and sometimes even the best returns.
2. Wall Street is covering fewer stocks than ever before, making now a great time to start looking for tiny treasures.
3. Microcap stocks can burn if you don't do your homework. That's why we try to shed more light on the asset class.

Microscopic surgery
This column uses our Motley Fool CAPS community intelligence database to turn up promising stocks. The system asks amateur and professional investors alike to rate stocks either "outperform" or "underperform." In turn, each investor is rated, as is each stock.

The end result is that while only huge companies like Wal-Mart (NYSE:WMT) have more than 15 or 20 analysts following them, CAPS harnesses the ideas of thousands to get at the long tail of the stock market with the same depth of coverage.

Drumroll, please ...
So, without further ado, here are five five-star CAPS stocks with market caps between $100 million-$200 million and coverage from four or fewer professional analysts.

As always, don't view these stocks as hearty formal recommendations, but rather as appetizing starters for further analysis. Agreed?

With that settled, Penford and E-Z-EM might just be two small wonders worthy of your Foolish due diligence.

Starching from scratch
Penford is one of those small companies that I always like to investigate, operating in an obscure corner of the market. Only one professional analyst covers the Colorado-based firm, one of the leading producers of natural ingredient solutions.

Say what? In plain English, Penford develops starch-based products used to coat all sorts of things -- from the paper in your favorite magazines to the French fries served at your local fast-food joints. You know, for that fresh, crispy feeling.

Last November, Penford announced the groundbreaking of its brand new, $42 million ethanol facility, further cementing its decision to break into the alternative energy market. The stock is up nearly 30% since the announcement, and its foray into this space should only attract more attention from bio-fuel fanatics, going forward.

These two CAPS community members have kindly penned their thoughts on Penford for us:

• newmoney1973: The core business is making starches for paper products, and switching part of their plant over will have minimum cost, and will show profit faster. Watch this company: good things happening.
• hersh43: Ethanol production is on their radar for 2007 with expansion of an existing plant. Penford is already very profitable and this very timely move should make sales and profits soar in 2008.

Easy does it
E-Z-EM Inc., a New York-based developer of medical devices, is another stock in the long tail that has piqued the interest of our CAPS players. The company specializes primarily in gastrointestinal tract (GI) imaging, which is used to evaluate swallowing disorders, screen for cancer, and diagnose various diseases.

I find E-Z-EM particularly interesting because of all the corporate changes it has undergone. Within the last few years, the company spun off its AngioDynamics subsidiary, dramatically transformed its manufacturing base with third-party suppliers, and dove headfirst into the field of health-care decontamination. For a company with a market cap of less than $200M, these changes might very well add up to some big growth in the future.

E-Z-EM, in fact, is expected to see annualized growth of 25% for the next five years. That would make the shares available at a PEG ratio of less than one, and therefore a prime candidate for the "cheap growth stock" label. Add the firm's cash pile of $40 million (with no long-term debt), and this one looks like a relatively "EZ" thumbs-up -- for two of our CAPS residents at least:

• JTShideler: I am really interested in this company's product line, especially the decontamination kit it makes for Chemical Agents ... I think this stock has a lot of growth in it for the next couple of years. This stock won't make me rich but it is likely to maintain consistent returns to beat the market.
• wgillen: The market is kind of beating on this stock, but with their line of products and prospects for a spot in the world market, I give this stock a buy.

Are we on the same micro-wavelength?
But of course, the real question is whether you believe these companies are real micromarvels, or small shrimps waiting to squished. Log on to CAPS and let us know how you feel.

It's absolutely free, and within seconds, you'll have access to thousands of potential stock ideas. Join now -- more teeny tiny treasures await their discovery.

For more CAPS coverage:

• This Just In: Upgrades & Downgrades
• 5 More Top Growth Stocks
• Wall Street's Wish List

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Wal-Mart is a Motley Fool Inside Value choice. The Fool's disclosure policy is never too small to be seen.