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 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 two stocks this simple screen found:

Company

Market Cap

EPS Act. vs. Est.

Avg. Analyst 5-Year EPS Est.

CAPS Rating
(out of 5)

Diamond Foods (Nasdaq: DMND  ) $532 million 18% 18% **
Heckmann (Nasdaq: HEK  ) $608 million 300% 28% ****

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.

Nuts!
At this point, it seems nut grower Diamond Foods has seriously harmed itself, if not irreparably then certainly for a significant period of time. The improperly accounted-for payments it made to walnut growers not only tarnished its reputation -- and resulted in the ouster of its CEO and CFO -- but also ruined the opportunity to become a powerhouse in the snack food business. Its proposed purchase of Procter & Gamble's Pringles brand crumbled in the wake of the payment investigation, allowing Kellogg to step into the breach and snatch the chip maker.

Diamond Foods investors can only look at what might have been. Pringles will triple the size of Kellogg's international snack food division and will place it second only to PepsiCo's Frito-Lay unit as the largest snack food company.

Yet a silver lining, if it could be called that, is that because Diamond is such damaged goods these days, it's actually a takeover target itself now. While Kellogg didn't come right out and say it, it did intimate it would be a natural fit. But with investigations into the company ongoing, it's likely any attempt to buy the nut grower won't happen anytime soon, and the probes could always turn up more damaging material that would turn away any potential acquirer.

CAPS member Jognils believes Diamond's fundamental business is still sound and the loss of Pringles might not be as bad as it appears:

Beaten down ..., but the Board seems to be serious about cleaning up shop, as evidenced by a three-month investigation into the walnut grower payments, immediately firing the CEO and CFO ..., and seeking to improve internal controls. The failure of Diamond's bid for Pringles is another plus in my book. High post-PopSecret leverage is still a concern, but I think the core business is still solid and can keep growing.

With shares now 75% below their highs, add Diamond Foods to your watchlist to see if it can recover at least a modicum of its former glory.

Just frackin' great
Another potential takeover target with an unsavory business model is the water management firm for the energy industry, Heckmann. It takes a lot of water for oil and gas companies to hydraulically fracture rock formations to get at the trapped liquids and gas, and the irrational fears raised by environmental activists that it's polluting our aquifers (and causing earthquakes!) has cut Heckmann's stock by a quarter.

Carbo Ceramics (NYSE: CRR  ) , the leading supplier of proppants -- small ceramic beads used to prop open the fractures created -- now trades 50% below its highs because of the fearmongering. Heckmann dismisses such charges, pointing out fracking occurs well beneath the level of the aquifers and the fluids pumped into the ground seep down, not up.

Analysts see opportunity in Heckmann's discounted stock, thinking oil-services firms like Halliburton (NYSE: HAL  ) or Schlumberger, both of which are deep into fracking, might step in to make an offer.

Highly rated CAPS All-Star tenmiles thinks reason will eventually win out, making the water management specialist a winning bet:

Large short interest - buyer off recent sell-off to the $5.10 range as I believe long term fracking business prospects remain solid - above average one year play from this level relative to the overall market.

Add Heckmann to the Fool's free portfolio tracker and tell us in the comments section below or on the Heckmann CAPS page if you agree its future isn't as fractured as it looks.

Foolish final thoughts
These companies may 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 only available for 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 holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of PepsiCo and Heckmann. Motley Fool newsletter services have recommended buying shares of Schlumberger, PepsiCo, and Procter & Gamble, as well as creating a diagonal call position in PepsiCo. 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.


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