The Way to Prosperity

When the Oracle of Omaha, Warren Buffett, started investing, he was able to turn $10,000 into the multibillion-dollar conglomerate known as Berkshire Hathaway. Similarly, Shelby Davis began with $50,000 and amassed a $900 million family fortune.

Inspirational stories of stock market success like these show me there's hope I'll be able to achieve my own personal financial goals. However, I can already hear the objections. What if you don't have $50,000 to launch your investing career? What if your bank account doesn't have $5,000 in it, let alone $10,000, to start building your retirement nest egg? Are you doomed to a life of penury and misery?

No! You don't need a trust fund as large as Trouble's (Trouble being the dog owned by the late Leona Helmsley) to start securing your financial future. In fact, a commitment to regular, small investments -- as little as $50 or $100 a month -- can be the start of a million-dollar retirement account.

A four-step plan
The four keys to achieving this goal are:

  • Start today!
  • Invest regularly. Every month, put away $250, $100, even $50.
  • Look to the stock market for your best hope of realizing your dreams.
  • Seek out undervalued, small-cap stocks for your greatest returns.

You can beat the market
You know the importance of investing sooner rather than later. And you know that putting small, regular amounts into the stock market can make a big difference over time. But why small caps?

Small caps are the market segment where investors can hope to make the greatest returns. With small caps, investors have an edge, because institutions tend to ignore them and analysts don't cover them. By the time anyone realizes they're there, they've already grown much larger and appreciated in price. Even the venerable Eastman Kodak, which traces its lineage back to George Eastman's experiments on his mother's kitchen table, started off as a small company.

To find those small-cap stocks, we're first going to run a simple screen, and then we're going to turn to the Motley Fool CAPS community to validate those choices.

We want companies with market values of less than $2.5 billion (which qualifies them as small caps) and stock prices of more than $5 a share (which weeds out penny stocks). I'm also looking for stocks that are going to grow in the future and have already begun the process. So I'm looking for companies that had an earnings surprise of 20% or more last quarter but that also have the prospect of growing earnings at least 20% annually for the next five years, according to analysts.

The CAPS advantage
I then paired them up with the collective investing wisdom of the 70,000 professional and novice investors in the CAPS universe and sought only the top-rated ones. If the best and brightest CAPS players also think these stocks hold potential, then we ought to take notice, too.

Here are some of the top stocks this simple screen found:


Market Cap

Share Price

Earnings Surprise

5-Year Growth Est.

CAPS Rating (out of 5) (NASDAQ:OSTK)

$928.0 million





ViroPharma (NASDAQ:VPHM)

$601.1 million





RF Micro Devices (NASDAQ:RFMD)

$1.2 billion





Evergreen Solar (NASDAQ:ESLR)

$1.2 billion





Harmonic (NASDAQ:HLIT)

$982.7 million





Screen results courtesy of MSN MoneyCentral; CAPS ratings courtesy Motley Fool CAPS.

Of course, this isn't a list of recommended stocks to buy. We need to look a little more closely at these companies to see if the faith that analysts have placed in them is well-founded. This is a starting point for more research, but we've got the CAPS community helping us here.

Foolish final thoughts
Academics will tell you individual investors have little chance of beating the stock market. They say the Warren Buffetts, Shelby Davises, and Peter Lynches are the exceptions to the rule. We at The Motley Fool think differently. Stock investing is not brain surgery. Finding good, undervalued companies is not as hard as the professionals want you to think.

It is possible to make a more comfortable retirement for yourself, even if you have little money to start with or are starting late in life. It is possible to turn $100 into $1 million. You just have to commit to doing it now and doing it regularly. No amount is too small. Let's get started. There's no time to lose!

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539577, ~/Articles/ArticleHandler.aspx, 10/27/2016 5:28:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
ESLRQ.DL $0.02 Down +0.00 +0.00%
Evergreen Solar, I… CAPS Rating: *
HLIT $5.15 Down -0.15 -2.83%
Harmonic CAPS Rating: **
OSTK $14.70 Down -0.05 -0.34% CAPS Rating: *
RFMD.DL $0.00 Down +0.00 +0.00%
RF Micro Devices CAPS Rating: ****
VPHM.DL $0.00 Down +0.00 +0.00%
ViroPharma CAPS Rating: ***