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 the big investors mostly ignore them.

Below, we screen for stocks that have less than a $3 billion in market cap and offered earnings surprises of 15% or more in the previous quarter, with long-term earnings growth forecasted 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 Actual vs. Estimated

Average Analyst 5-Year EPS Estimate

CAPS Rating (out of 5)

Amarin (Nasdaq: AMRN  )

$2.1 billion

$0.12 vs. ($0.07)

74%

**

Glu Mobile (Nasdaq: GLUU  )

$258 million

($0.02) vs. ($0.07)

30%

*

ZAGG (Nasdaq: ZAGG  )

$258 million

$0.13 vs. $0.10

26%

*

Sources: 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 lot of times, investors express disappointment when their stock is bought out. Although there's the immediate gain to be booked in the usually higher value of a merger, long-term investors look forward to years of gains from ownership of a stock. Not so with investors in Amarin, a heart-drug developer whose CEO reportedly said it wanted partnerships, not buyouts. The stock is down 10% since the statement was made, suggesting that investors had a much more short-term mindset.

Ever since Amarin's triglyceride-lowering fish-oil therapy AMR101 scored big results when its Anchor clinical trials showed that it met all of its endpoints for safety and did what it was supposed to do without raising "bad" LDL cholesterol, investors have been looking for someone like Pfizer (NYSE: PFE  ) to throw it a line. Perhaps they think it can't fare as well against GlaxoSmithKline's Lovaza or Abbott Labs' (NYSE: ABT  ) own iterations, even if AMR101 seemingly looks better.

CAPS member russellb73 thinks Amarin can do well enough on its own, since its therapy is a potential big winner: "Read the results of two phase III studies for AMR101....totally better than Lovaza (GSK drug 1 billion in sales). Unless 2 phase III trials are fabricated hard to see how you could lose with this one......I guess someone else finds similar results for specific fish oil protein....otherwise AMRN has a blockbuster."

Add Amarin to your watchlist, and head over to the Amarin CAPS page to tell us whether it's best to hedge your bets.

Going mobile is smart
With FarmVille maker Zynga about to go public, the markets are looking more closely at other social-media gaming specialists, including Majestic Entertainment (Nasdaq: COOL  ) and Glu Mobile. Majestic made a big splash with its Zumba Fitness program for the Wii, but it's planning on building on that success with other platforms as well. Glu Mobile is looking to strike it rich with a selection of mobile gaming offerings. Considering how popular Rovio's Angry Birds game has become, investors see lots of potential in the market.

CAPS member AggroCrag31 says it's only necessary to look at the global proliferation of smartphones to see the opportunity here: "Worldwide smart phone ownership will continue to rise which will increase the market size for the simple hand held games Gluu Mobile provides. this company and stock has nowhere to go but up."

Add Glu to the Fool's free portfolio tracker to keep an eye on how fast it can get there.

A hole in the story
Will ZAGG's new invisibleSHIELD patent have it going after Apple (Nasdaq: AAPL  ) in court? The maker of protective covers and accessories momentarily got crushed when an Apple-made cover-and-stand combo hit the market. It highlighted the shallow moat ZAGG had, and it left investors asking how it could play defense against interlopers. Well, a patent is apparently one way.

According to ZAGG, "This utility patent will allow ZAGG to defend its innovative approach to wrap electronic devices in a protective film, like our award-winning invisibleSHIELD products." Although ZAGG's film and Apple's cover aren't quite the same, and the company hasn't indicated plans to go after any particular protective cover, don't underestimate the ability of attorneys to engage in linguistic gymnastics when it comes to defending a business model.

Certainly the patent would be a useful tool in cutting deals. CAPS member slimjimh sees one scenario for a major victory: "If they can link a deal with Apple for just one of their products the stock would just explode!!! Literally."

Head over to the ZAGG CAPS page and tell us whether you think it has the market covered.

Foolish final thoughts
Stock investing is not brain surgery. Finding good, undervalued companies isn't 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 Motley Fool owns shares of Apple, GlaxoSmithKline, and Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of Abbott Laboratories, GlaxoSmithKline, Pfizer, and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Rich Duprey has no financial interest in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (5)

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 June 08, 2011, at 11:38 PM, whodoyoulove123 wrote:

    Did you even read the patent? It is for clear film covering 6 sides of a cell phone. How in the heck are they going to sue apple? Apple doesn't sell screen protectors.

    How are they going to sue anyone? They are broke.

  • Report this Comment On June 09, 2011, at 8:23 PM, russellb73 wrote:

    Since I have been quoted above in the article.....

    I would caution anyone about buying AMRN now (as of early June 2011) because it appears they are not going to be bought out and instead they have sold shares, diluted share value to pay for development of AMRN. I think this strategy is risky for the investor but can actually give greater returns in the long run if successful.

    Really think the best case for AMR101 is for the company to partner with another company and make tablet that contains AMR101 + Statin drug (think AMR101 plus Lipitor).

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