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.

Here I'll screen for stocks with less than $3 billion in market cap that 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 180,000 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)

MIPS Technologies (Nasdaq: MIPS  )

$236 million

67%

19%

****

VirnetX Holdings (AMEX: VHC  )

$1.26 billion

NM

25%

*

Sources: Yahoo.com and Motley Fool CAPS. NM = not meaningful; VirnetX posted an $0.11-per-share profit for the quarter, beating analyst expectations for a loss of $0.06 per share.

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.

Good humor, man
When Google (Nasdaq: GOOG  ) released its Ice Cream Sandwich mobile operating system, it was heralded as a unifying force between smartphones and tablet computers. It was also suggested as the gateway for Google to introduce a Nexus tablet, giving new life to the Android platform.

Maybe it won't jump-start the brand, but MIPS Technologies and Ingenic Semiconductor have unveiled a sub-$100 tablet computer that could spur big sales for the chip designer. Available right now only in China, it will be available internationally in a few months.

A year ago, MIPS was in a situation that found it overpromising and underdelivering. That might have bought it some time, but when some new contracts failed to come through, the stock was punished. One of its largest shareholders, Starboard, was also dissatisfied with the current board of directors and offered a slate of candidates to replace them, as they've steered a course of value destruction since the IPO. It was time for a new direction. MIPS ultimately placed two new independent directors on its board.

This could all help explain why 93% of the CAPS members rating MIPS now see it outperforming the broad indexes. Along with improving financials, it marks a change of fortunes for the chip designer. Tell us on the MIPS Technologies CAPS page whether you think the new tablet and the fresh blood mark a new opportunity for the company, and then add MIPS to your watchlist to see how it turns out.

Stopping short
The new year brings the prospect of some big victories for 4G security specialist VirnetX Holdings, at least in the legal arena if not in the marketplace. It has patent-infringement lawsuits against Apple (Nasdaq: AAPL  ) , Cisco, and others, with the Markman hearings in the cases scheduled to begin this month. It has better standing now after the U.S. patent office denied Apple's request to re-examine VirnetX's '180 patent. Markman hearings iron out interpretations of various patent claims before a trial begins.

While having a valid patent puts it in a better position, it's not a guarantee of a win. Earlier in 2011, it had scored a major victory against Microsoft (Nasdaq: MSFT  ) that saw the software giant settle the lawsuit for $200 million. Similar wins against Apple and Cisco could be just as lucrative and the start of a licensing avalanche of its 4G security patents to other major players in the mobile industry. Heady growth would only be just around the corner.

For the CAPS community, that's a few too many "ifs" for their liking. Only 58% of the nearly 200 members rating the 4G specialist think it can beat the market and All-Star member GundersonGroup instead sees the downside mounting: "Losing money for the foreseeable future, >14x TBV, chart and overall market are bearish."

Add VirnetX Holdings to your watchlist, and tell us on the VirnetX CAPS page or in the comments section below whether you think the patent cases give it a secure future.

Foolish final thoughts
These companies have the odds stacked against them, but The Motley Fool has identified two stocks that are also facing difficult times yet still grow revenues hand over fist. The report is free, but it's available for only a short time, so ask for your copy today and find out the two cash kings that are changing the face of their industry.

Fool contributor Rich Duprey owns shares of Cisco Systems, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Apple, Cisco, and Google and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Google, Apple, Cisco, and Microsoft, as well as creating bull call spread positions in Apple and Microsoft. 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 (4) | Recommend This Article (6)

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 January 03, 2012, at 7:54 PM, jambrosini wrote:

    VHC - because of its win against MSFT and the denial by the ITC of Apples appeal should be a very viable position to capitalize on its Patents. I believe if it were not for the shorts playing this stock like a violin, the stock would already be back to its 40+ pricing . Because no one can predict the outcome of lawsuits, yes that makes this a bit speculative, but I can tell you I love to have those odds at a casino all day every day

    I am long VHC for the record ,with a break even price of 26

  • Report this Comment On January 04, 2012, at 8:21 AM, jnail wrote:

    I read yesterday that the $ 99 tablet of MIPS has been suddenly discontinued. It has been replaced by $ 150 plus tablet called the "NOVO 7 Elf" that does not use the Ingenic chip but a more powerful cortex 8A chip. ( this was reported in PRLOG ). I question what this will mean if this is true.

  • Report this Comment On January 05, 2012, at 10:39 AM, whatconfused wrote:

    Interesting to note on the same day MIPS is listed on both the 'Worst Semiconductor Stocks of 2011' and 'Amass a Fortune with these Stocks'

  • Report this Comment On January 14, 2012, at 8:22 PM, catheya7088 wrote:

    I felt that MIPS change from "overpromising and underdelivering" to "don't ask don't tell". They are not lying yet but their credibility is questionable.

    It's not rumor. MIPS sub-100 discontinued. Ainol adjust the price to ~$135 and call it Novo Paladin. Same company also sell Novo 7 Elf and Novo 8 which is based on Arm. The return rate for MIPS tablet is high due to the fact that top 100 google apps won't run including netflix and Skype.

    It's interesting to see how one Ingenic can compete with 5+ china local tablet vendors.

    From MIPS press release, Ingenic is not using CPU core from MIPS. It will be interesting to see how many licensees are using MIPS core for this application. We will soon find out in their earning call.

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