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
|
| Jinpan International (NYSE: JST ) |
$193 million
|
$0.35 vs. $0.28
|
35%
|
*****
|
| SkyPeople Fruit Juice (NYSE: SPU ) |
$111 million
|
$0.15 vs. $0.13
|
30%
|
***
|
| Sunrise Senior Living (NYSE: SRZ ) |
$605 million
|
$0.54 vs. ($0.25)
|
18%
|
***
|
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
A year ago Jinpan International disappointed the market by reporting sequential declines in revenues and profits despite assurances it was a temporary condition brought on by shipping patterns. The cast-resin transformer maker hasn't had much to celebrate since then, either but its latest results showed a 3% uptick in sales even as profits contracted further as net income declined 7%.
That trend could expand as Jinpan reports securing a number of new contracts, particularly in the solar polysilicon industry. There's a supply crunch again in polysilicon and suppliers like MEMC Electronic Materials (NYSE: WFR ) are rapidly expanding capacity to take advantage of the higher prices brought on by the dearth of inventory.
We saw the same situation play out a few years ago such that even Trina Solar considered building its own facility to ensure an adequate supply (it subsequently cancelled those plans though). With a new shortage holding sway, we'll likely see demand for new plants once again, and orders for Jinpan's transformers will rise in sympathy.
CAPS member gilboy7 has been expecting this growth and believes Jinpan's stock will follow suit:
A strong competitor in the cast resin transformer industry in Asia and Europe. It is a very competitive industry but, with a strong back log of orders and an asia-centric location Jinpan looks over sold at this price. With a 25% growth outlook over the next few years I am a buyer around $10.
Cast your vote on its future on the Jinpan International CAPS page and see whether solar's own cloudy future casts a shadow here.
Green means go!
Although there are a number of arguments against investing in SkyPeople Fruit Juice, it is correct in its assumption that the demand for fruit juices in China is growing. Whether that actually translates into the $9 million in revenues it's forecast for a brand new juice drink it introduced that will produce enviable 30% margins remains to be seen, but Coca-Cola (NYSE: KO ) has reported 21% volume growth in juices and juice drinks there. Had it not been for the severe flooding the country suffered in 2010, increases might have been even larger.
As NELDML does, many investors make an association with Hansen Natural, but JP9287 sees it simply as growing into a better business:
Having recently introduced a new line of fruit juices targeting women ages 18-34 (a large audience in China) I think this previously ultra seasonal business will be able to find a more stable following, thus being able to provide more stable returns.
Add the juice maker to your watchlist to follow along and see if management's rosy outlook is warranted.
Man the ramparts
Like fellow assisted-living operator Brookdale Senior Living, industry peer Sunrise Senior Living adopted a model of growing bigger by getting smaller. While its true Sunrise was able to far exceed analyst forecasts, a lot of that was the result of one-time gains from the cost-cutting actions. The Fool's Rich Smith isn't looking for a repeat performance from Sunrise going forward, instead preferring an operator like Five Star Quality Care (NYSE: FVE ) .
More consolidation is under way in the assisted-living sector with Ventas (NYSE: VTR ) wheeling senior-housing operator Nationwide Health Properties into its portfolio. Sunrise jumped on the news (which followed a jump after the earnings report), but shares have since slid back as it doesn't seem there will be any carryover of benefits, as was originally hoped.
With almost 90% of the CAPS community rating Sunrise believing it will outperform the market, it's apparent they don't believe the company is finished yet.
Let us know on the Sunrise Senior Living CAPS page whether this stock is in its twilight years, or if it still has a future before it.
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!
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