Wall Street pros have nothing on retail investors who stake small sums of money monthly on undervalued small-cap stocks. Because the big guns mostly ignore them, these types of stocks offer the best, outsized opportunities for growth.
Today we'll screen for stocks with less than $3 billion in market cap, offering earnings surprises of 15% or more in the previous quarter and long-term earnings growth forecast to be at least 15%. We'll then filter our findings through the collective investing wisdom of the Motley Fool CAPS community and those they think have the best chance for winning.
Here are two stocks this simple screen found:
EPS Actual vs. Estimated
Average Analyst 5-Year EPS Estimate
CAPS Rating (out of 5)
|Cirrus Logic (Nasdaq: CRUS )||$1.7 billion||37%||20%||****|
|Stratasys (Nasdaq: SSYS )||$1.0 billion||18%||18%||*****|
Source: Zacks 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.
Is it really smart to be dependent?
I doubt the next-generation iPhone will be a dud just because analysts find its artificial-intelligence persona Siri lacking, particularly since they expect iOS6's release this fall to be a big improvement. But according to Piper Jaffray, Siri gets a "D" grade for accuracy and needs to boost that to a "B+" at least if it's truly going to be a viable program.
While Nuance Communications (Nasdaq: NUAN ) is the voice-recognition software that allows Siri to hear, it's Cirrus Logic that plays key roles in its power through its audio codec chips, and Apple (Nasdaq: AAPL ) is increasingly becoming the crutch upon which Cirrus relies. For the fiscal 2012 year, Apple represented 62% of the chipmaker's revenues, up from 47% the year before, and 25% in 2010. With analysts anticipating it's scored a win with Apple TV, we might see those numbers rise even higher.
While piggybacking on to the maker of such iconic goods is good for business these days -- sales jumped 21% and per-share profits beat analyst expectations by 36% -- there's growing risk in becoming too reliant on one customer. A misstep by Apple, however foreign a concept that might seem, or the loss of a spot in the iPhone, such as happened with OmniVision Technologies last year, will cause the stock to plunge. As CAPS member gs8212 points out, with Apple recently teaming up with Intel, there's always looming competition, and it's "a reminder that CRUS needs to expand customer base."
I agree, though I won't be closing out my own outperform rating on CAPS. Still, tell me on the Cirrus Logic CAPS page or in the comments box below how long you thing the good times will last.
Fit to print
Similarly, 3-D printing leader Stratasys is also rolling in clover these days, though portentous clouds loom on the horizon. Last time out, I pointed to the big opportunities stretching out before Stratasys' peer 3D Systems (NYSE: DDD ) but noted the potential for legal headaches if (or before) 3-D printing becomes a mass commodity. Consumers printing out their own Legos would create trademark-infringement issues, though CAPS member apositt thinks a workaround would be devised, such as having Lego perhaps licensing its designs for some sort of remuneration.
But the business of 3-D printing is booming, and Investor's Business Daily noted that it had grown to $1.3 billion last year and said analysts are expecting it to expand to more than $5 billion by 2020, a 16% compounded annual growth rate, which is right in line with the 19% long-term earnings growth analysts predict for Stratasys.
This is obviously an industry still in its early growth phase, which is probably why 96% of the 607 CAPS members rating Stratasys think it will beat the market indexes. CAPS member gryphongate puts the printer at the "epicenter of emerging technology addressing a very large market." That's likely to make it a takeover target at some point, too.
It does carry a lofty valuation, as does 3D Systems, and shares are up 56% year to date, though they've eased off the highs they hit back in May. But I think the long-term prospects for Stratasys and the industry look good, and I've rated it to outperform as well. Tell me know in the comments section below whether you think it can continue printing out profits at the rate it has.
Foolish final thoughts
Stratasys and 3-D Systems are leading the charge in this new growth industry, and Apple has become so powerful, it holds the fate of numerous tech companies in the palm of its hand. To help investors better understand Apple's opportunities and threats, our top technology analyst has just created a premium research report on the company. In it, you'll learn about the key issues to understand with Apple, and you'll receive a full year of updates to go with it. Learn more.