5 Top Micro-Cap Stocks

Hey there, Fools. We're back again to help you identify some of the most attractive micro-cap 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. Micro cap stocks can burn if you don't do your homework, so we try to shed more light on the asset class for you.

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 such as Pfizer (NYSE:PFE) 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.

Drum roll, please ...
So without further ado, here are five CAPS stocks sporting four or five stars, that have market caps between $100 million and $200 million, and that three or fewer professional analysts are covering.

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

Now that we have that settled, let's look at Williams Controls and Euroseas, which might just be a small wonder worthy of your Foolish due diligence.

Completely under controls
As a Foolish defensive investor, I try to slap on the brakes whenever I get too excited about a stock's prospects. Several times, though, I would've done well to just go full-throttle on my initial buying plans. Williams Controls, a manufacturer of electronic throttle systems, and whose stock is up more than 30% since being relisted on the Nasdaq last October, is one of those stocks that looks to have blown right past me.

A few months ago, I took a brief look at Williams -- and soon forgot about it -- after finding it on Joel Greenblatt's magical list. Several CAPS investors, however, have long cited tightening emissions standards worldwide as a huge growth opportunity for Williams -- particularly in China and India, where electronically fuel-injected engines aren't yet the norm. International revenues represent nearly 40% of the company's revenues, with the Asian business up a whopping 80% in 2006.

Although I may be psychologically anchored to the price at which I first found Williams, new investors shouldn't be overly concerned. With an EV/EBITDA of 7.4 -- along with steady cash flow and heavy insider ownership for some Foolish piece of mind -- Williams is at least worth a closer look. CAPS All-Star rmenschel puts the pedal to the metal with this fast and furious pitch:

Top margins and returns, reasonable debt, cash flow, and free cash flow. Insiders own 29%. Good products with stable, long-term needs.

ESEA does it
Euroseas, a Greece-based operator of dry-bulk carrier vessels, is another stock in the long tail that piques the interest of our CAPS players. The company has been aggressively expanding its fleet -- from the proceeds it received in a January public offering -- so, as with Williams above, I'd say this is largely another play on exciting global growth.

As I write this, Euroseas' stock is up more than 5% for the day and has even doubled since January. If management can continue its torrid performance, all while keeping its dividend payout streak intact, then the stock should keep rising based on more than just momentum.   

Throw in an EV/EBITDA ratio of less than 10, a yummy dividend yield of about 6.5%, and the fact that Euroseas' operating history dates all the way back to the 19th century, and you've got a pretty steady ship at sea. In addition, All-Star firms Ferris Baker Watts and Fortis Bank -- whose real-life calls we track on CAPS -- also have an outperform rating on the stock.   

CAPS player majakblue gives us a quick call on Euroseas, along with yet another shipper we should consider:  

Dry bulk shipping, yeah! Check out TBSI. I actually have some of that. Clearly a service for the global economy. (Euroseas) will do well.

Are we on the same micro-wavelength?
But of course, the real question is whether you believe these companies are real micro marvels or just small shrimps waiting to get 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.

Pfizer is a Motley Fool Inside Value pick.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is never too small to be seen.