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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-Year EPS Est.

CAPS Rating
(out of 5)

Goodyear Tire & Rubber (NYSE: GT  ) $2.5 billion $0.13 vs. $0.10 31% **
Itron (Nasdaq: ITRI  ) $2.5 billion $1.06 vs. $0.86 21% ****
MercadoLibre (Nasdaq: MELI  ) $2.7 billion $0.43 vs. $0.31 40% ****

Source: Yahoo.com 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
If Fed Chairman Ben Bernanke is determined to cause inflation with his monstrous policy of quantitative easing, then we should expect companies like Goodyear Tire & Rubber to suffer as a result of rising commodities prices.

With carmakers Ford (NYSE: F  ) and GM finding the traction to sell more cars, Goodyear and Cooper Tire & Rubber -- as well as Michelin and Bridgestone -- are going to sell more tires. And Goodyear did this past quarter, with unit sales rising 5% in North America and revenues up 17% year over year. What killed the company -- and the stock -- was raw materials costs. Those expenses were 50% higher since just the start of the year.

Highly rated CAPS All-Star TheGreatSatan thinks Goodyear is already fighting with one hand tied behind its back because of the steelworkers union, and that could explain why almost one-fifth of the CAPS members rating the tire maker think it won't outperform the market.

Yet with 80% looking for outperformance, Goodyear could end up in the driver's seat as Detroit turns its fortunes around.

I'll drink to that
We are smart enough for the smart grid. Power meter maker Itron reported earnings that came in well ahead of analyst expectations as revenues more than doubled in North America as its Open Way meters powered half of the rise. It shipped 1.3 million units this quarter. Utilities like Exelon (NYSE: EXC  ) and Sempra Energy (NYSE: SRE  ) have been the driving force for distributing meters and advancing the smart grid concept.

Although international revenues were down this quarter, CAPS player mudwatters still sees them  as part of the equation for Itron's future growth:

As the US and other countries modernize their power grids, smart meters will be an important part of the upgrade. Itron can expect to benefit from the upsurge in spending for years to come.

Add Itron to your My Watchlist page to get all the Foolish news and analysis about it compiled in one place.

Man the ramparts
Mini-eBay (Nasdaq: EBAY  ) auction operator MercadoLibre may have confused the market by preselling its credit card receivables this quarter, but the Brazilian e-commerce company is still bidding on future growth. The change in accounting allows MercadoLibre to eliminate the expensing associated with the cost of discounting them as well as the financial risk, so they're now reported as the net amount collected.

CAPS All-Star noirblood sees both fundamental and technical reasons why MercadoLibre is still a buy:

There's still a lot of growth here, especially in MercadoPago. I expect the USD to see continued weakness with QE2 and the general policy of the Fed. This could close the gap between MELI's USD and local currency earnings, and if analysts take this quarter's "miss" as a sign of future weakness, we could see healthy beats in coming quarters.

Join the 920 CAPS members on the MercadoLibre CAPS page and let us know if you side with the 93% who look for it to outperform the broad market averages.

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!

The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, "I will spend my last dying breath... and every penny of Apple's $40 billion in the bank to right this wrong." What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?

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Exelon is a Motley Fool Inside Value selection. MercadoLibre is a Motley Fool Rule Breakers pick. eBay and Ford Motor are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a bull call spread position on eBay. The Fool owns shares of Exelon. 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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Related Tickers

5/25/2012 4:00 PM
ITRI $35.33 Up +0.03 +0.08%
Itron, Inc. CAPS Rating: ****
MELI $74.73 Down +0.00 +0.00%
MercadoLibre CAPS Rating: ****
SRE $64.35 Up +0.30 +0.47%
Sempra Energy CAPS Rating: ****
GT $10.59 Up +0.17 +1.63%
The Goodyear Tire… CAPS Rating: **
EBAY $40.35 Up +0.68 +1.71%
eBay CAPS Rating: ****
EXC $36.90 Up +0.04 +0.11%
Exelon Corp CAPS Rating: *****
F $10.60 Up +0.01 +0.09%
Ford CAPS Rating: ****

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