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 the 180,000 members in our Motley Fool CAPS community.
Here are some of the stocks this simple screen found:
EPS Actual vs. Estimate
Average Analyst 5-Year EPS Est.
|Caribou Coffee (Nasdaq: CBOU )||$307 million||44%||23%||**|
|Crocs (Nasdaq: CROX )||$2.5 billion||39%||25%||*|
|ZOLL Medical (Nasdaq: ZOLL )||$823 million||20%||44%||*****|
Source: Yahoo! Finance 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
At what point do consumers, let alone investors, get tired of the premium hot drink experience? Starbucks, of course, brought overpriced coffee to the masses, and others have tried to follow in its footsteps. Teavana (NYSE: TEA ) is now trying to replicate the experience with a chain of teahouses. I'm waiting for the first publicly traded hookah house to hit the market.
Caribou Coffee operates more than 550 coffee shops primarily in the U.S., which some see as copying the Starbucks model. Yet predating Seattle's coffee king, Caribou teamed up in 2007 with Green Mountain Coffee Roasters' (Nasdaq: GMCR ) Keurig to market its coffee through its K-Cups. Starbucks finally allowed its coffee to be served individually at home earlier this year.
And where its rival has saturated the market with its shops -- it's planning to open more stores this year than Caribou has in existence now -- Caribou is ramping up with new markets to target regularly. Yet Caribou's operating margins significantly lag its bigger rival, though net margins are fairly comparable. Caribou is going to have to rein in costs to improve itself.
The CAPS community is apparently looking for some stability before going all in, with just two-thirds of the members rating the coffee shop to outperform the broad market averages. Add Caribou to your watchlist, then head over to the Caribou Coffee CAPS page and let your own thoughts percolate to the top.
Take a hike
If all you think of when you think of Crocs is its plastic shoe with holes, you're far behind the times. The different models of shoes, sandals, sneakers, and boots indicate that the company that nearly became a passing fad has learned its lesson. Its offerings are stylish, fashionable, utilitarian, and perhaps most important for Crocs-lovers, comfortable.
For example, one men's boot model mixes its Croslite material for water protection with leather uppers for style and a fuzz lining for warmth. It's not a Deckers Outdoor (Nasdaq: DECK ) Ugg, but it might be more practical.
The biggest risk now I see for Crocs is that it's become another shoemaker. Its Croslite gives it differentiation, which is key, but it needs to continue proving that will be enough of a difference. Results thus far suggest it is, and CAPS member Lostnconfused is impressed with its turnaround.
Remember the 'fad' label so many attached to CROX? What are they saying now? This company has done a 360 and is headed higher. Positive sales growth, operating margin growth, earnings growth, etc. etc. I could go on and on with positive signs right down the list. Oh did I mention there is going to be some consolidation in the shoe industry? Bound to happen.
Add Crocs to the Fool's free portfolio tracker to see whether investors are willing to walk a mile in its shoes.
Taking giant steps
Somebody throw ZOLL Medical a life vest! After reporting third-quarter results that saw a 65% increase in profits from a 22% jump in sales, driven primarily by its flagship LifeVest wearable defibrillator, shares soared only to turn tail shortly thereafter and plunge -- and plunge again -- when the quarterly report showed it was at risk of losing significant Medicare reimbursement.
Although it faces competition from Phillips and Medtronic's (NYSE: MDT ) Physio-Control unit over the full range of its defibrillator product line, there's no other product on the market like its LifeVest.
According to one doctor, Medicare is revisiting reimbursement of the LifeVest based on studies that have nothing to do with wearable defibrillators, and the decision will curiously be rendered by non-cardiologists provided by the insurance industry. While the review could always go in ZOLL's favor, it would seem the deck has been stacked against it.
CAPS members still think it can beat the market indexes, with 95% rating it to outperform, so add the medical-device maker to the Fool's free portfolio tracker and let us know if you think this issue is as serious as a heart attack at the ZOLL Medical CAPS page.
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!