This Month's Foolish 8 Stocks

This article is part of our Rising Star portfolio series.

Over the next couple of days, I'll be gathering more small- and mid-cap candidates for my Rising Star "multivitamin" portfolio using my Foolish 8 and modified Foolish 8 screens. Today, I'll 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 to $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.

The contenders
Nine companies passed the screen this month:

Company

Market Cap 
(in millions)

Business

Add to Your Watchlist

3-D Systems (NYSE: DDD  )

$905

3-D printers and products

Add

Acme Packet (Nasdaq: APKT  )

$4,708

Communications equipment

Add

Gulfport Energy (Nasdaq: GPOR  )

$1,254

Oil and gas

Add

HFF

$528

Commercial real estate

Add

Interactive Intelligence
(Nasdaq: ININ  )

$608

Business software

Add

IPG Photonics (Nasdaq: IPGP  )

$3,383

Networking equipment

Add

Preformed Line Products

$375

Electrical networking

Add

Transcend Services (Nasdaq: TRCR  )

$267

Medical transcription

Add

Virtusa (Nasdaq: VRTU  )

$464

IT consulting

Add

Source: Capital IQ, a division of Standard & Poor's.

The new stocks on the list this month are Gulfport Energy, Preformed Line Products, Transcend Services, and Virtusa. Dropping off the screen from last month is Financial Engines.

Biggie smalls
Here's a look at some interesting metrics for these small fries:

Company

Insider Ownership

Forward P/E

EV/FCF (TTM)

ROE

Net Margin

3-D Systems

12%

52.1

29.0

16%

14%

Acme Packet

18%

97.8

232.9

17%

19%

Gulfport Energy

20%

26.0

NM

26%

40%

HFF

19%

33.7

NM

25%

9%

Interactive Intelligence

24%

23.9

31.1

18%

9%

IPG Photonics

26%

67.6

151.4

23%

21%

Preformed Line Products

48%

15.0

NM

15%

8%

Transcend Services

12%

28.9

24.6

16%

11%

Virtusa

14%

27.8

111.5

8%

7%

Source: Capital IQ, a division of Standard & Poor's. P/E = price-to-earnings ratio; EV = enterprise value; FCF = free cash flow; TTM = trailing 12 months; ROE = return on equity.

The NM above stands for "not meaningful," which is the result of dividing by negative free cash flow. (In this case I'm using Capital IQ's unlevered free cash flow definition.) If any of these companies look interesting enough for me to research further, I'll delve more into the reasoning behind the negative FCF.

Tomorrow I'll show you 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 interested in keeping up with any of these companies, add them to your free watchlist by clicking the "add" button in the far-right column of the top table. You can also follow me on Twitter and check out the multivitamin discussion board. Until tomorrow!

This article is part of our Rising Star portfolio series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).

Fool analyst Rex Moore reminds you that time holds the winning hand. He owns no companies mentioned here. The Motley Fool owns shares of 3-D Systems and IPG Photonics. Motley Fool newsletter services have recommended buying shares of Interactive Intelligence, IPG Photonics, and Acme Packet. 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.


Read/Post Comments (2) | Recommend This Article (4)

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 June 07, 2011, at 6:36 PM, utri wrote:

    Hi,

    Where do you get the information about insider holdings ? It seems that morningstar, yahoo finance and reuters, all have different data for some companies.

    Regards,

    -C

  • Report this Comment On June 07, 2011, at 9:24 PM, TMFOrangeblood wrote:

    Hi C,

    All data is from Capital IQ. Just checking DDD, for example, I see Yahoo lists insider ownership at 3.26%. But Cap IQ shows that the chairman and the CEO own at least 8.5% between them.

    Cheers,

    Rex

Add your comment.

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