The Way to Prosperity

The Oracle of Omaha, Warren Buffett, turned an initial bankroll of $10,000 into a multibillion-dollar conglomerate. Shelby Davis began with $50,000, and he amassed a $900 million fortune. These inspiring stories give us all hope that we'll be able to achieve our own financial dreams. But what if you don't have $50,000, or $10,000, or even $5,000 to get started?

Fear not, Fool -- you aren't doomed to penury and misery. You don't need a trust fund as big as Trouble's to start securing your financial future. Just follow these four simple steps:

• Start today!
• Invest regularly. Every month, put away $250, $100, even $50.
• Look to the stock market for your best hope of realizing your dreams.
• Seek undervalued small-cap stocks for your greatest returns.

Why small caps?
Small caps offer the greatest potential for market-beating returns. Institutions tend to ignore these tiny stocks, and analysts don't cover them. By the time anyone realizes they're there, they've already grown and appreciated in price. To find these future giants, we'll screen for stocks with:

• market values less than $2.5 billion, to qualify as a small caps
• share prices above $5, to weed out penny stocks
• an earnings surprise of 20% or more last quarter
• the prospect of growing earnings at least 20% annually for the next five years, according to analysts

We'll filter our findings through the collective investing wisdom of the more than 89,000 professional and novice investors in our Motley Fool CAPS community. If the best and brightest CAPS players think these stocks hold potential, then we ought to take notice, too.

Here are some of the stocks this simple screen found:

Of course, this is not a list of stocks to buy. This is a starting point for more research. We need to look more closely at these companies to see if analysts' faith in them is well-founded, but we've got the CAPS community helping us here, and starting with their favorites would be a good place to begin.

It's in the cards
Despite the ostrich-like stance the U.S. government has taken to Internet gambling, the popularity and pace of international expansion is growing. CryptoLogic's recent earnings report gave investors a dose of the good (revenues came in higher than management's forecast) and the bad (operating cash flows took some body blows). Let's call it a push for the quarter.

Investors think the odds are stacked in their favor, however, as 96% of the investors on CAPS have rated it an outperform. CAPS player Lituus finds that with the transition away from North America behind it, focusing on Europe and Asia will allow it to eventually hit the jackpot.

I think it is time to start buying on this one. The stock is cheap, they have no debt, the shift from [North America] is complete and they are focusing efforts on [Europe] and [Asia Pacific]. I think the big [opportunity] is in [Asia Pacific] where they just made an acquisition. Plus, there is the bonus of the dividend yielding over 2% (hopefully they can continue to fund it).

CAPS investor john9044 agrees and believes that "mumblings and grumblings" may yet lead to the gambling ban being rescinded here.

The company has taken a hit because of U.S. legislation against online gambling, but 70% of the company's business comes from outside the U.S. anyway. Also, it has this huge pile of cash money and is continuing to grow business. There are mumblings and grumblings in Washington that may lead to a revisiting of lawmakers' questionable decision to restrict online gambling.

Foolish final thoughts
Academics will tell you that individual investors have little chance of beating the stock market. They say the Warren Buffetts, Shelby Davises, and Peter Lynches are the exceptions to the rule. We at The Motley Fool don't agree. Stock investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think.

It is possible to make a more comfortable retirement for yourself, even if you have little money to start with or are starting late in life. It is possible to turn $100 into $1 million. You just have to commit: Do it now, and do it regularly. No amount is too small. Let's get started. There's no time to lose!