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 180,000 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 (out of 5)

Mitek Systems (Nasdaq: MITK  ) $222 million 117% 25% *
Molycorp (NYSE: MCP  ) $2.8 billion 30% 50% *
Stamps.com (Nasdaq: STMP  ) $295 million 96% 18% **

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
You've probably seen the TV commercial for JPMorgan Chase where the banking customer takes a picture of his check to make a deposit into his checking account. Welcome to the way-cool company behind that technology: Mitek Systems.

Through proprietary software designed for smartphones, consumers can not only deposit their checks in the bank without leaving the house, but they can also pay bills, save receipts, and even fax documents. You simply take a picture and the software extracts all the relevant data. It has bank-deposit relationships with Chase, Capital One Financial, and US Bancorp (NYSE: USB  ) . As this is a new market, there's no real competition for Mitek yet, but it is expected to grow.

Equally exciting is its recently launched mobile imaging cloud service that provides developers and businesses with a platform to create apps for smartphones and tablets using the embedded camera as the input device.

I agree with CAPS member VPHM's take: "As mobile banking users discover the convenience, utility, time-savings as well as cost savings of using mobile check deposit with a camera enabled cell phone and banks realize huge cost savings by driving check deposits through a less costly processing channel then their branches, ATMs and mail Mitek will grow at a tremendous rate."

Add Mitek to your watchlist, and then head over to the Mitek CAPS page and grab a snapshot of what others are saying about this new technology.

Take a hike
When it comes to rare earth metals, it looks like China burned the furniture to heat the house. It's currently the world's largest producer of rare earth elements, and they're used in all sorts of devices, from smartphones to missile guidance systems. By playing hardball and limiting their export last year, it created a mania that jumpstarted the search for not only additional REE deposits -- turns out they're not as rare as the name suggests -- but alternatives to them, too.

Molycorp, Rare Element Resources (NYSE: REE  ) , and a host of Chinese mining stocks with only the most tangential relationship to rare earth elements, soared on the expected supply shortage and anticipated run-up in prices. While it was something of a self-fulfilling prophecy, the ardor for the elements and the stocks has since cooled. Expect them to cool further.

Both Toyota and General Electric (NYSE: GE  ) have announced they won't be using as much REE material in their cars and windmills, and analysts are expecting prices of the most prevalent REEs to fall 50% from current levels.

Molycorp's stock is off 58% from the highs it hit earlier this year, but as the one company furthest along in its mining prospects, it at least has the best shot at success. CAPS All-Stars are split, however, with just 45% thinking it can beat the market averages. Add Molycorp to the Fool's free portfolio tracker to see whether investors are willing to wait for the benefits to come.

Taking giant steps
At first glance it might seem counterintuitive that as the U.S. Postal Service is careening toward a bankruptcy, online postage service Stamps.com should be doing so good. But it's the inefficiency of the bloated postal service that makes Stamps.com such an attractive company. Even though email has replaced a lot of letter writing and online banking has replaced bill paying by mail, there are some things that still require being sent the old-fashioned way. Stamps.com allows you to purchase and print your postage online and then leave the package for the mailman to pickup.

While I doubt Congress would let the postal service go under -- there's a reason there's a post office in just about every single town; their employees equal votes -- Stamps.com could thrive even more if FedEx, UPS (NYSE: UPS  ) , or some other private carrier were delivering the mail. But politicians will likely save the service until the next crisis arises without effecting any structural changes in the system, meaning that Stamps.com should continue to do well.

With 94% of the CAPS members rating the postage service to outperform the market, it seems they believe it has a better future than the post office.

Add Stamps.com to the Fool's free portfolio tracker and write us a note on the Stamps.com CAPS page -- just don't mail it! -- on how you see its future.

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!

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of JPMorgan Chase, United Parcel Service, and FedEx. Motley Fool newsletter services have recommended buying shares of FedEx. 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. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (4)

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 October 04, 2011, at 4:32 PM, HAUG0099 wrote:

    Your ridiculous comments about the Postal Service shows how little you truly know. The Postal Service has 70 billion in cash, more than UPS and Fedx combined. They are not only cheaper, but faster than both UPS and Fedx. The fact that your Republican friends are holding 5.5 billion of the Postal Services's cash each year is the only problem with this company. Did you know they had a profit in 2008 and 2009 and broke even in 2010? Get your facts straight. Private, overpaid bloated companies like UPS and Fedx and their Ceo/Officers have never been able to compete with the USPS prices and service and never will.

  • Report this Comment On October 14, 2011, at 9:07 AM, TMFCop wrote:

    HAUG0099,

    Did you ever stop to consider that it was the taxpayer that was subsidizing the USPS, allowing it to undercut the prices offered by private sector competitors?

    While the USPS says it's not subsidized, it's annual report shows it received $3.13 billion of "capital contributions" from the federal government last year. And I'm not sure where you get your "profit" numbers from but on both an operating and net basis, the annual report shows losses that are growing exponentially.

    Net losses went from $2.8 billion in 2008 to $8.5 billion last year. Since its reorganization, the deficit of the USPS has ballooned from $4.7 billion in 2008 to over $17 billion in 2010.

    Feel free to read it yourself:

    http://about.usps.com/who-we-are/financials/annual-reports/f...

    Ultimately you're right, the private sector has never been able to compete with the USPS on price and service -- because they're forbidden by law to where it counts most, delivery of 1st class mail.

    I stand by my contention the USPS is a bloated, taxpayer subsidized entity larded with layers of inefficiency. The mails and the taxpayer would be better off with private enterprise carriers delivering our letters.

    Rich

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