I'll be gathering more small- and mid-cap candidates for my real-money "multivitamin" portfolio over the next few days via my Foolish 8 and modified Foolish 8 screens. Today I present the Foolish 8, which was developed by Motley Fool co-founder David Gardner to identify profitable, rapid-growth small-cap stocks. Here are the eight criteria:
1. Revenues: $500 million or less
2. Earnings and sales growth: 25% or greater
3. Net profit margin: 7% or greater
4. Daily dollar volume: $1 million-$25 million
5. Insider holdings: 10% or greater
6. Share price: $7 or greater
7. Relative strength: 90 or greater
8. Operating cash flow: a positive number
This month, 10 companies passed the screen, up from seven in May:
Market Cap (in millions)
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|Akorn (Nasdaq: AKRX )||$1,388||Pharmaceuticals||Add|
|Altisource Portfolio Solutions||$1,572||Real estate management/development||Add|
|American Vanguard (NYSE: AVD )||$725||Chemicals||Add|
|Liquidity Services (Nasdaq: LQDT )||$1,760||Internet software and services||Add|
|Main Street Capital (NYSE: MAIN )||$664||Capital markets||Add|
|Spectrum Pharmaceuticals (Nasdaq: SPPI )||$194||Biotechnology||Add|
|TGC Industries||$1,388||Energy equipment and services||Add|
Source: S&P Capital IQ.
All companies from last month stayed on the screen, and they were joined by newcomers Homeowners Choice, Main Street Capital, and TGC Industries.
Main Street has been on and off this list, made this month's "7 Signs of a Winner" screen, and nearly made last month's Modified Foolish 8. It carries a five-star CAPS rating and yields a juicy 7.5%.
Liquidity Services delivered a nice second-quarter earnings report. The online auctioneer is growing fast, and saw gross merchandise volume increase by 59%.
Akorn has been on quite a run recently. The generic-pharmaceuticals company is showing off some exciting growth, but fellow Fool Sean Williams worries about valuation and is waiting for a pullback.
American Vanguard is one of the screen's better performers in the last few months, up 34% since February. What's more, fellow Fool Seth Jayson likes the company's improving cash conversion cycle.
Spectrum has incredibly high short interest, with 48% of its float sold short. But as Jordo Bivona of the Fool's blog network points out, this biotech is for real, with two drugs on the market, four in clinical trial stages, and more in the pipeline. The worry is that Fusilev -- which accounted for $153 million of the company's $193 million in total 2011 revenue -- will come under greater pressure from the lower-cost alternative leucovorin, if leucovorin ever becomes more widely available. (It's currently beset by manufacturing problems.) Also, the top two customers make up 57% and 19% of Spectrum's total product revenue. Yes, this is a high-risk, small-cap biotech.
I hear CAPS calling
As I mentioned, I'm tracking and scoring each one of my monthly screens now so we can see exactly how they're performing. We refer to it as a CAPScall around these parts, and the Foolish 8 has its own page. Just add it as a favorite to keep up.
Tomorrow, I'll reveal the results of this month's modified Foolish 8 screen, and then talk about the companies that interest me from both screens in more depth.
If you're looking for something to balance out your risky small caps, consider our special free report detailing the best of the steady dividend payers. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks," and it's yours for the taking.