5 Top Micro-Cap Stocks

Hey there, Fools. We're back again to help you identify some of the most attractive micro-cap stocks worthy of your investment dollars. Just as a reminder, we do this because:

  1. Underfollowed micro-cap companies offer great returns -- and sometimes even the best returns.
  2. Wall Street is covering fewer stocks than ever before, making now a great time to start looking for tiny treasures.
  3. Micro-cap stocks can burn if you don't do your homework, so we try to shed more light on the asset class for you.

Microscopic surgery
This column uses our Motley Fool CAPS community-intelligence database to turn up promising stocks. The system asks amateur and professional investors alike to rate stocks either "outperform" or "underperform." In turn, each investor is rated, as is each stock.

The end result is that while only large companies like Sirius (Nasdaq: SIRI  ) have more than 15 or 20 analysts following them, CAPS harnesses the ideas of thousands to get at the long tail of the stock market with the same depth of coverage.

Drum roll, please ...
So without further ado, here are five CAPS stocks sporting a top rating of five stars, that have market caps between $100 million and $200 million, and that four or fewer professional analysts are covering.


Market Cap

Number of CAPS Ratings


Current Analyst Recommendation

Nathan's Famous (NASDAQ:NATH)

$105 million



Strong buy

Mercer Insurance Group (MIGP)

$114 million




SORL Auto Parts (SORL)

$123 million




American Pacific (NASDAQ:APFC)

$125 million




The York Water Company (NASDAQ:YORW)

$187 million



1 buy, 2 holds

Data from Yahoo! Finance and Motley Fool CAPS.

As always, don't view these stocks as hearty formal recommendations, but rather as appetizing starters for further analysis. Agreed?

Now that we have that settled, Nathan's Famous and American Pacific might be a pair of small wonders worthy of your Foolish due diligence.

Hot diggity dogs
Since most of us will be working on Thanksgiving leftovers for a while, I thought I'd highlight a micro cap famous for its belly-stuffing. Nathan's Famous, the fast-food chain best known for its Fourth of July International Hot Dog-Eating Contest, is a stock that CAPS Fools are steadily starting to chew on.

Management has aggressively expanded its points of distribution -- for example, placing outlets at various Home Depot (NYSE: HD  ) stores -- and it looks like the strategy is paying off. In the latest quarter, Nathan's reported a 20% increase in operating income and announced plans to repurchase 500,000 shares. Of course, Nathan's has delivered double-digit revenue, net income, and free cash flow over the last three years, so strong results aren't exactly a surprise.

With the stock currently trading at an EV/EBITDA multiple under 10, Nathan's might be worth a bite. 

CAPS All-Star pencils2 digs in:

Nathan's has gone unnoticed by Wall Street even while producing strong cash flow, sporting a very healthy balance sheet, and having a good reputation has a brand. ... Many executives on the board of directors have been with Nathan's since the 1990's, some have been with the company for 25-30 years. There is a lot of experience here, and they have done a fine job running and expanding the business.

Compounding compounds
American Pacific is another stock in the long tail that piques the interest of our community. Like Nathan's Famous, the Las Vegas-based producer of specialty chemicals is starting to gain a Foolish following: All 25 CAPS players who've rated American Pacific are bullish.

Fueled by a strong competitive position in each of its three segments -- specialty chemicals, fine chemicals, and aerospace equipment -- American Pacific has achieved double-digit revenue and EBITDA growth over the last few years. Stable client demand, including a renegotiated major contract with aerospace company Alliant Techsystems (NYSE: ATK  ) , should do its part to keep the backlog healthy in upcoming years.

American Pacific has returned a massive 125% over the last year, yet still trades at an EV/EBITDA of 5.6 and a price-to-sales ratio of less than 1, so it's probably not too late to take a peek.

CAPS player NeroSagetrade helps us manage our expectations:

American Pacific is not going to rocket onto your message boards with a relatively exciting product. All they are going to do is supply a practically monopolized compound to the defense industry and profit greatly off of it. Don't expect revenues to rise exponentially, just expect solid growth.

Are we on the same micro-wavelength?
But, of course, the real question is whether you believe these companies are real micro-marvels, or just small shrimps waiting to get squished. Log on to CAPS and let us know how you feel.

It's absolutely free and, within seconds, you'll have access to thousands of potential stock ideas. Join now -- more teeny-tiny treasures await their discovery!

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