Amass Your Fortune With These Top Stocks

You don't need the investing acumen of Warren Buffett or the riches of a trust-fund baby to achieve financial success.

Since the stock market is your best hope for realizing your 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 stocks 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, an earnings surprise of 15% or more in the previous quarter, and forecasts for long-term earnings growth potential of at least 15%. We'll filter our findings through the collective investing wisdom of the 170,000 members in our Motley Fool CAPS community. If the best and brightest CAPS players think these stocks hold potential, we ought to take notice, too.

Here are some of the stocks this simple screen found:

Company

Market Cap

EPS Surprise

Avg. Analyst 5-Yr EPS Est.

CAPS Rating

AeroVironment (Nasdaq: AVAV  )

$508 million

($0.16) vs. ($0.23)

29%

****

Himax Technologies (Nasdaq: HIMX  )

$442 million

$0.07 vs. $0.06

15%

*****

ViroPharma (Nasdaq: VPHM  )

$1.3 billion

$0.45 vs. $0.31

16%

****

Source: Yahoo! Finance and Motley Fool CAPS.

Of course, this is not a list of stocks to buy -- just a starting point for more research. We need to look more closely at these companies to see whether analysts' faith in them is well-founded. Still, since the CAPS community's helping us out, their favorite selections might be a good place to begin.

An alternative opportunity
Defense contractors have to play both defense and offense these days. With the eventual winding down of hostilities in Iraq and Afghanistan, Lockheed Martin and Raytheon (NYSE: RTN  ) are just two big-name contractors that will see their budgets hit. But smaller players will face an even more urgent need to shore up contract losses.

AeroVironment, for example, saw use of its unmanned aircraft play a big role in the wars. That role will be greatly diminished over the next year. AeroVironment's Global Observer program, an unmanned observational aircraft that flies in the stratosphere, received less R&D funding this past quarter, which was part of the reason why AeroVironment had negligible revenue growth. Yet there are peacetime uses for the aircraft (weather services, for example), and just because we're not in a hot war doesn't mean this country doesn't stay vigilant.

AeroVironment is also tapping into the growing energy-efficient vehicle market with electric vehicle test systems. At a little more than 12% of total revenue, this segment is still small, but it's growing. It could also be a source for future growth, particularly if the Chevy Volt, Tesla Roadster, or even the Nissan (Nasdaq: NSANY  ) Leaf gain traction.

Indeed, as highly rated CAPS All-Star member TMFPlatoish notes, Nissan has chosen AeroVironment as the approved charger vendor for its electric cars:

The UAV business accounts for about 90% of sales currently and is in decline as the wars in Iraq and Afghanistan wind down. The EV charger business will take some time to develop further and the competition will undoubtedly be tough. They have formed a partnership with Nissan to be the approved charger vendor for the Leaf and in some sense this gives them first mover status.

When the chips are down
Analysts expected Himax Semiconductor to short-circuit this year, as demand for flat-panel televisions hit recessionary headwinds. Even LCD glass producer Corning (NYSE: GLW  ) witnessed declining sales. That forecast was borne out by Himax's updated guidance earlier this month. The chipmaker now expects a 26% decrease in revenue, instead of the 13% to 18% drop it had previously guided toward.

Management says the worst is over, and it does look like the business is bottoming out. There seem to be long-term trends in its favor as well. Silicon Image (Nasdaq: SIMG  ) , which is tied into the presentation of high-def content particularly through HDMI ports, booked rising sales recently, and massive consumer market China still hasn't converted to an all-digital TV signal.

Almost all of the nearly 300 CAPS All-Stars rating Himax believe it will outperform the market. But in the meantime, gutchdon2 is willing to wait and collect the dividend:

Very nice dividend of 10%,and will make a $1.00 or more in capital gains ion the next year.

Patience is a virtue
Biotech ViroPharma received a setback when the FDA rejected its proposal to ramp up production of Cinryze -- a drug used to treat the potentially fatal genetic disease known as hereditary angioedema -- to industrial production levels. That's going to crimp ViroPharma's ability to hit the $250 million in sales it has been forecasting.

But this setback isn't fatal; the biotech needs only to ease agency concerns in just a few seemingly surmountable areas, before it gets the green light. In that case, the hoped-for growth might merely be temporarily delayed.

Join the 1,264 CAPS members on the ViroPharma CAPS page, and let us know whether you side with the 97% of its raters who expect it to outperform the broad market averages. Then add it to your My Watchlist page, to get all the Foolish news and analysis about ViroPharma compiled in one place.

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!

AeroVironment is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey currently does not own any stocks as you can see here. The Motley Fool has a disclosure policy.


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