Can You Amass a 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.

Small sums of money invested monthly in undervalued small-cap stocks offer hope for your greatest returns. They offer the best growth opportunities for growth because they're mostly ignored by the big investors.

Below we screen for stocks under $3 billion in market cap, offering earnings surprises of 15% or more in the previous quarter, with long-term earnings growth forecast to be at least 15%. We'll then filter our findings through the collective investing wisdom of the 170,000 members in our Motley Fool CAPS community.

Here are some of the stocks this simple screen found:

Company

Market Cap

EPS Act. vs. Est.

Avg. Analyst 5-Yr EPS Est.

CAPS Rating

SodaStream (Nasdaq: SODA  )

$558 million

$0.33 vs. $0.14

33%

*

Travelzoo (Nasdaq: TZOO  )

$719 million

$0.23 vs. $0.20

25%

*

YRC Worldwide (Nasdaq: YRCW  )

$111 million

($0.59) vs. ($1.37)

15%

**

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.

An alternative opportunity
Can a million Swedes be wrong? SodaStream would say no, as a million of its home soda-making machines were sold in the country, but there's risk aplenty in this recent IPO.

Despite SodaStream being a Motley Fool Rule Breakers recommendation, I'm not sold on its prospects. Key patents surrounding its aeration system expire this year, and even as it's been touted as a razor-and-blades type business similar to Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , SodaStream's competitive moat seems easily surmounted.

It already faces competition in its systems in some of its markets and could see even stronger competitive pressure in flavor refills and CO2 canisters, where third-party outlets can refill those pricey canisters presumably at lower cost. This is important because SodaStream says the refills generate more long-term value than the flavors or the machines by themselves. With 64 oz. of SodaStream soft drinks costing about $1.34, it offers no price benefit over Coca-Cola (NYSE: KO  ) or PepsiCo products that routinely can be bought for less.

CAPS member jimmy4040 says there are considerable differences between soda and coffee that make this company ripe for losing its fizz:

While individualized coffee has succeeded because it is always in some sense made fresh, that has never been the case with soda. This company does not it any way comport with American lifestyles. Look for this stock to be heavily manipulated before crashing. Put it on the shelf next to the home ice cream maker that you never used.

I've marked SodaStream to underperform the indexes on CAPS, but you can share your thoughts on the SodaStream CAPS page on whether it can still pop.

Green means go!
Even after its stock nearly doubled over the past year, Priceline.com (NYSE: PCLN  ) is more attractively valued based on forward earnings estimates and growth projections than smaller Internet travel agency Travelzoo, which has tripled in price. So what might make the upstart a better buy than its bigger rival?

Well, for starters, the Fool's Tim Beyers likes the huge margins it realizes on its business, bigger than Priceline, Expedia (Nasdaq: EXPE  ) , or Orbitz. Its returns on equity also beat its rivals, and on a normalized basis, earnings don't carry the same premium.

mitleg would undoubtedly agree, saying Travelzoo is a company, with all the same attributes of its biggest competitor, and worth buying in stages:

It is a great story, and could be even better. It has growth similar to priceline, and in similarly hated. I say start a small position, and add to it as it goes up.

Add the travel agent to your watchlist and see if it's able to take wing as rising oil prices hit airlines and unrest abroad upsets the best-laid travel plans.

Man the ramparts
We've driven down this road before with trucker YRC Worldwide. It's been a constant fight for the company to stave off bankruptcy, and despite negotiations with lenders and its unions, it looks ready to run off the road again. Burdened by excessive debt, it is engaging in a significant restructuring for the second time in less than two years.

Although the potential for bankruptcy exists, YRC can still gain enough traction and take control of the steering wheel if the economy continues improving. Truck tonnages industrywide are up, and the owner of Roadway and Yellow trucks is regaining lost customers. Since it is able to negotiate a restructuring, its lenders see the company as not only worth saving but acknowledge that it has the ability to do so if given enough time.

It's definitely not my favorite stock to bet on, but CAPS member freddiefontain says the latest deal gives it room to move:

There seems to be a lot of positive energy keeping this stock afloat, right from the get go. My quess, is once this final deal gets sealed in July, it will sky rocket in price to everyones dismay. I hope to be on that rocket.

Thumb your way over to the YRC Worldwide CAPS page and let us know if you think the trucker can go full throttle.

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 doing so regularly. Now's the time to begin!

Coca-Cola is a Motley Fool Inside Value recommendation. Green Mountain Coffee Roasters and SodaStream are Motley Fool Rule Breakers picks. priceline.com is a Motley Fool Stock Advisor recommendation. Coca-Cola and PepsiCo are Motley Fool Income Investor choices. Motley Fool Alpha has opened a short position on Green Mountain Coffee Roasters. Motley Fool Options has recommended buying puts on Green Mountain Coffee Roasters and a diagonal call position on PepsiCo. The Fool owns shares of Coca-Cola and PepsiCo. 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 owns shares of Aixtron but does not have a financial interest in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (3)

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 March 10, 2011, at 10:57 AM, pondee619 wrote:

    What does this mean?

    "It is a great story, and could be even better. It has growth similar to priceline, and in similarly hated."

    ...and in similarily hated? Why is this quoted here?

  • Report this Comment On March 10, 2011, at 10:57 AM, emphature wrote:

    Well, like the Motley Fool always says, "use your brain." Daddy4040 has been bashing this stock forever and the Fool...well:

    "Motley Fool Alpha has opened a short position on Green Mountain Coffee Roasters. Motley Fool Options has recommended buying puts on Green Mountain Coffee Roasters."

    Take a look at GMCR today. Yeah, people...you BETTER use your brain.

    In fact, go take a look at the numbers driving that "1 star" rating on SODA. A few select TMF folks with high scorers (because they have been in their positions for 5 years) have bear calls.

    SodaStream is ACTUALLY mostly rated a buy by the members who have put it on their CAPS. So be careful what you hear from the Fools, they aren't telling the whole story here (and neither is daddy404...ever).

  • Report this Comment On March 10, 2011, at 12:41 PM, jimmy4040 wrote:

    Thanks Rich, I already have the MSFT cult after me. Now I will be chased by the SODA people too. Good thing I don't have a Facebook page.

    I love RB, but I won't invest in SODA. If anybody else loves it, go right ahead!

    Now I've got to go. There are more MSFT investors outside my house chanting "intrinsic value" over and over. They've been there for ten years now, so I buy them lunch sometimes because they can't afford it themselves. LOL

  • Report this Comment On March 10, 2011, at 1:19 PM, TMFCop wrote:

    jimmy4040,

    Well, if it's any comfort I don't disagree with you. Rule Breakers has a pretty good track record, and I was wrong about GMCR too, but SODA is no GMCR despite certain similarities.

    But let me know some other stocks you're bashing and I'll see if I can't highlight them too. May as well get everyone riled up all at once. ;>

    Rich

  • Report this Comment On March 10, 2011, at 4:14 PM, BusyWithFizzy wrote:

    Here are the facts with Sodastream:

    Good success in Western Europe with 39 markets throughout the world. Penetration within many of these markets is anywhere from 5% to 15%, with Sweden being 20%. Yes, 20% household penetration.

    A good portion of the mix is for seltzer in Europe where as in the U.S., we consume more soda than any other country. In fact, it's way more.

    The U.S. rollout was primarily in October (Q4 of 2010.) They did incredibly well with sales surging 189% in the U.S.

    Bed, Bath, and Beyond's best seller for the holiday season was the Sodastream machine.

    If U.S. penetration is at least 5%, the stock is in the range of $60. Of course, it could have 10% penetration sending the stock even higher.

    The tell? Whether or not consumables (syrups and carbonation) are selling well - secular trend upwards. Sure enough, the CEO did state on the conference call last week that consumable sales are up week over week (without exception) since January 1st.

    If this continues, we will see another short squeeze when the next quarter reports. Or even right before.

    The last squeeze was a beauty. Shorts were scrambling sending the price from $32 to $39 in one day.

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