Amass Your Fortune With These Top Stocks

Achieving financial success doesn't require you to have the investing acumen of Warren Buffett or be a trust-fund baby to start securing your financial future.

Since the stock market is our best hope for realizing our dreams, start investing today by putting away small sums of money every month. Then seek out undervalued small-cap stocks for your greatest returns. I like these because they offer opportunities for growth while still being mostly overlooked by the big investors.

To find these future giants, we'll screen for stocks with market values less than $3 billion, that had earnings of 15% or more last quarter, and are forecast to have long-term earnings growth potential of at least 15%. Then we'll filter our findings through the collective investing wisdom of the 160,000 members in our Motley Fool CAPS community. If the best and brightest CAPS players think these stocks hold potential, then we ought to take notice, too.

Here are some of the stocks this simple screen found:

Company

Market Cap

EPS Surprise

Avg. Analyst 5-Year EPS Est.

CAPS Rating

MercadoLibre (Nasdaq: MELI  )

$2.3 billion

$0.22 vs. $0.18

38%

****

Microvision (Nasdaq: MVIS  )

$262 million

($0.10) vs. ($0.12)

18%

***

POZEN (Nasdaq: POZN  )

$248 million

($0.10) vs. ($0.19)

30%

**

Source: Yahoo.com and Motley Fool CAPS.

Of course, this is not a list of stocks to buy. This is a starting point for more research. We need to look more closely at these companies to see if analysts' faith in them is well-founded, but we've got the CAPS community helping us here, and we'd do well to begin with their favorites.

An alternative opportunity
An investment in MercadoLibre is just as much a bet on growth in the Brazilian economy. Although the Latin American e-commerce platform is based in Argentina, it derives almost 43% of its revenues from Brazil. The country is expected to enjoy China-like growth this year, with analysts expect it to expand at a rate of 7.5% this year. The service, which operates like eBay (Nasdaq: EBAY  ) , should see better results itself. With consumers feeling better and having more cash to spend, there's a good chance they'll surf MercadoLibre's sellers for good deals.

As CAPS member JPNot points out, eBay is a shareholder in MercadoLibre and will also benefit from its expansion plans:

Based in Argentina, MELI is considered the Ebay of Latin America. And in fact, Ebay owns about 18% of MELI. It recently expanded to Portugal and growth has been robust. Company has strong fundamentals with a ROE of 32%

Got my eye on you
Looking at Microvision's most recent earnings report, a superficial read of the micro-projector maker's results would lead you to believe that business was faltering. Revenues were down, losses widened, and it used more cash for operations than a year ago. But the company is in transition, switching from one dependent upon contract revenues to a seller of a hot new product.

We knew it had upside surprise potential as it signed up a super-secret consumer electronics company to buy $8.5 million worth of projectors, but with backlog jumping to almost $17 million (a 2600% increase), CAPS member manhattanbanker sees Microvision becoming a takeover target:

from a technology standpoint, mvis has built a formidable "moat" around themselves with the strongest patent portfolio in their space-because of this, mvis may be a possible takeover target sooner than later

There's been some fanciful speculation it might be Microsoft or Apple, but I'd wager Texas Instruments (NYSE: TXN  ) or 3M (NYSE: MMM  ) would be more interested since they're already competing against Microvision.

A case for heartburn
Pozen is another company with a potential blockbuster product on its hands, though it's a pharmaceutical, not a projector. It got the nod from the FDA to market Vimovo, a treatment for arthritis and gastric ulcers. AstraZeneca (NYSE: AZN  ) will launch the drug later this year, but it paid Pozen $20 million for the approval milestone. With 25 worldwide marketing applications submitted, AstraZeneca will pay Pozen another $25 million when the first one is approved.

Analysts see Vimovo as having huge potential, possibly generating as much as $500 million in revenues in the U.S. alone. With Pozen entitled to a 10% royalty on those sales, it's little wonder 80% of the CAPS members rating the pharmaceutical believe it will outperform the broad market averages.

Pozen's stock actually trades for a third less than what it did before Vimovo was approved, and with most of those payments not coming till later this year, and not factored into earnings estimates, I think there's some big movement up possible here. I've marked it to outperform, but you can add your own opinion on the Pozen CAPS page.

Foolish final thoughts
Stock investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think. You just have to commit to starting now, and do so regularly. Now's the time to begin!

3M and Microsoft are Motley Fool Inside Value picks. Mercadolibre is a Motley Fool Rule Breakers recommendation. Apple and eBay are Motley Fool Stock Advisor selections. The Fool owns shares of Microsoft. Try any of our Foolish newsletter services today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (7)

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.

  • Report this Comment On May 12, 2010, at 8:33 PM, busytim wrote:

    I am a physician, though I do not work in primary care. Regarding Pozen's drug Vimovo, this is a combination pill that combines 2 already available medications: esomeprazole (Nexium) and naproxyn. In other words, they haven't discovered a new miracle cure.

    They claim to have a proprietary dosing that allows patients with osteoarthritis and rheumatoid arthritis to get regular relief from naproxyn while reducing the risk of a gastric ulcer (a common side effect, especially with long-term use). While they may have discovered something new with respect to dosing, I would be very skeptical of such a claim without compelling evidence from a well-designed clinical trial.

    Essentially, they are taking 2 drugs, combining them into 1 tablet and presumably selling it at a much higher price than a person would pay for naproxyn and Nexium. There are numerous other combination pills on the market, and I don't doubt there's money to be made. However, most physicians I know see through this gimmick, and a lot of insurers do as well.

    I hope this adds a little perspective.

  • Report this Comment On May 17, 2010, at 7:16 AM, TMFCop wrote:

    busytim,

    Thanks for the perspective. I'm no doctor, but there are some benefits to combined formulations, no? Even if it results in a higher cost? And do insurers really not pay for the combined therapy?

    For example, Caduet seems to do well for Pfizer ($135 million in quarterly revenues) and is covered by insurance, even though Lipitor and amlodipine is cheaper (I've taken both regimens).

    I guess the question is, how often do insurers not pay for these types of combined drugs? I imagine there is also the benefit of ensuring a patient stays on his drug regimen by reducing the amount pills that need to be taken daily.

    As you point out, there is money to be made and while some smart doctors can help their patients keep costs low by prescribing the two separate medicines, many more apparently do opt for the simpler one-pill dosage. I'm guessing Pozen and many of the other drug companies are targeting this particular market.

    Thanks again,

    Rich

  • Report this Comment On May 17, 2010, at 7:27 AM, ragedmaximus wrote:

    pozn appears to be a stock that drives off the cliff every year! look at 5 year chart

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