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 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 our 170,000-member Motley Fool CAPS community.

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)

Netgear (Nasdaq: NTGR  ) $1.5 billion 25% 17% *
Polypore International (NYSE: PPO  ) $2.9 billion 38% 19% ***
Zumiez (Nasdaq: ZUMZ  ) $764 million 200% 22% ***

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
Because of the widening use of smartphones, along with explosive growth in tablet computers, the need for a better network is becoming more apparent to consumers and businesses. Networking equipment maker Netgear said last year that an upgrade cycle because of these trends was imminent, and its last-quarter results bore that out. Sales rose 32% and adjusted profits expanded some 35% from the year-ago period.

The equipment specialist is cementing its leadership position by buying Westell Technologies' (Nasdaq: WSTL  ) customer networking solutions division, giving it even more clear running room from Linksys, the rival owned by Cisco.

That could be why, with almost 2,400 CAPS members rating Netgear, 97% believe it will outperform the broad market average. Add the networking equipment leader to your watchlist, but also head over to the Netgear CAPS page and tell us whether it's got the right connections.

Getting a charge out of it
With its regular lead-acid battery business serving as a base of support, Polypore is growing its lithium ion business along with membranes that also serve electrical, industrial, and medical device products. Last quarter, all of its business lines saw growth, and while lead-acid battery revenues were up 33%, lithium battery separators jumped almost 39%; at $42 million, they represent nearly half the business it gets from lead-acid separators.

Lead-acid battery maker Exide (Nasdaq: XIDE  ) and industrial battery producer EnerSys rely upon Polypore separators for their batteries. Exide saw its own sales rise 8% recently, while EnerSys saw a 22% increase, 16% of which was organic growth. Lithium ion batteries, whether for cars or power tools, get more headlines than your regular lead-acid battery, but they'll continue to provide the foundation for Polypore's future.

That sort of growth is attracting the attention of investors, and CAPS member Slipposlappo is particularly impressed with how the lithium ion niche will play out:

This company seriously has some long term growth ahead of it. In a world where electricity is bound to take market share from oil, lithium batteries are the present and future of mobile device power, and grid improvements are bound to take place, this might as well be an oil company without much of the headline risk.

Add Polypore to the Fool's free portfolio tracker to keep an eye on how things pan out.

Get a kick out of it
Consumers pressured by unemployment and housing costs, along with rising gas prices, are going to present some high hurdles to retailers like trendy skatewear seller Zumiez. It won't be enough for the company to post numbers that may hit or miss expectations; consistent returns are going to be required to excite the market.

Zumiez saw that earlier this month when it reported solid May comps numbers, but suffered a big sell-off in the stock anyway, as analysts recommended investors lock in profits. That's a nice way of saying they don't think a repeat performance is in the cards.

Zumiez isn't alone. The factors are also harassing other teen retailers, some trendy, some more mainstream. Abercrombie & Fitch (NYSE: ANF  ) , Aeropostale (NYSE: ARO  ) , and American Eagle Outfitters have all had at least one disappointing month.

With 92% of the nearly 800 CAPS members who have rated the teen retailer marking it to outperform the market indexes, you should head over to the Zumiez CAPS page and tell us if you think it's time to start stocking up.

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 Motley Fool owns shares of Aeropostale. The Fool owns shares of and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Cisco and Netgear. Motley Fool newsletter services have recommended shorting Zumiez. 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. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey owns shares of Cisco and Aeropostale but does not have a financial interest in any of the other stocks mentioned in this article. You can see his holdings here.


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