Amass Your Fortune With These 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 Act. vs. Est.

Avg. Analyst 5-Year EPS Est.

CAPS Rating (out of 5)

China Valves Technology (Nasdaq: CVVT  )

$260 million

$0.44 vs. $0.36

18%

**

International Coal (NYSE: ICO  )

$1.8 billion

$0.12 vs. $0.08

73%

*****

Questcor Pharmaceuticals (Nasdaq: QCOR  )

$1.0 billion

$0.18 vs. $0.15

28%

**

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
China's ascendance to global economic powerhouse is creating a burgeoning need to get it's own infrastructure in place, which includes providing clean water and treating wastewater. For companies specializing in the space, it presents a great opportunity, one that even U.S. firms recognize and are acting on.

Watts Water Technology (NYSE: WTS  ) is just one firm that manufactures water safety and flow control products for water quality and conservation in China, as well as in the U.S. and Europe. The Chinese recognize the chance as well, and many small companies have swarmed into the space as well, but it has become a niche rife with problems as RINO International, Duoyuan Global Water (NYSE: DGW  ) , and now China Valve Technology attest.

Each of these companies is operating under a cloud of suspicion about the veracity of their financial disclosures. While management at China Valves strongly contests the charges against it, investors would still be wise to use extreme caution. CAPS All-Star member GunnarVagotis suggests swearing off the stock as it is yet another example of a small cap Chinese stock with accounting issues, and while the broader CAPS community thinks it will ultimately outperform the market, it's low two-star rating also indicates there are better places for your money.

Tell us on the China Valves Technology CAPS page when you think Chinese small caps will stop springing a leak.

Making a connection
A better bet might be International Coal, which although its stock has more than doubled over the past year and is up 50% in the past three months alone, still has plenty of opportunity for growth. Freight rail operator CSX (NYSE: CSX  ) , for example, reported revenues surged 34% in the fourth quarter on rising volumes from higher metallurgical coal export shipments, and with Australia inundated with floods (ironic, considering the multiyear droughts it just experienced), it projects export coal volumes to growth 33% more this year.

A 97% approval rating by CAPS members and top five-star rating suggests they believe this coal miner is just getting fired up. You can keep an eye on its progress by adding International Coal to your watchlist.

Man the ramparts
Questcor Pharmaceuticals also enjoys the backing of the CAPS community with 92% of those rating the maker of central nervous system disorder drugs to outperform the market. But like China Valves, they also have enough reservations to only bestow a two-star rating on it.

Questcor's top drug, Acthar, which is used to treat multiple sclerosis and has been approved by the FDA for treatment of infantile spasms, is expected to report prescriptions written for it will have grown by 66% when it announces earnings next month. That represents a 9% sequential increase. Yet while revenues may jump as a result, earnings could still take a hit as it doubled its sales force from August to October to make those sales, meaning its expenses will rise sharply.

Acthar also faces competition from Solu-Medrol, an MS drug produced by Pfizer (NYSE: PFE  ) , while Lundbeck's Sabril tackles it in the IS market.

CAPS member Radiohead101 sees Questcor as a growing player in the healthcare field, but only you can decide if the biotech is right for your portfolio. You can add Questcor Pharmaceuticals to the Fool's free portfolio tracker to keep an eye on what direction it's heading.

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!

Pfizer is a Motley Fool Inside Value selection. 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 does not have a financial interest in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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