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:

1. Start today!
2. Invest regularly. Every month, put away $250, $100, even $50.
3. Look to the stock market for your best hope of realizing your dreams.
4. 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 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 99,000 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. Also, note that Opnext's huge surprise came from beating an earnings estimate of $0.01 by $0.08. If the estimate had been $0.20, the surprise would have been only 40%. In other words, we need to look more closely at these companies to see if analysts' faith in them is well-founded. However, we've got the CAPS community helping us here, and starting with their favorites would be a good place to begin.

No hex on growth
Specialty composites maker Hexcel was able to turn in a quarterly report that surpassed analyst expectations, but also is having to beat back a proxy battle by activist shareholder OSS Capital. This group seeks to install a slate of members to the company's board of directors.

Hexcel's operating margins are lower than its peers', and OSS seeks to highlight that Cytec (NYSE: CYT), for example, is doing more to enhance shareholder value. One analyst, though, commented after the surprise that Hexcel's numbers have given some solace that performance may be better in the future.

With Hexcel's products going into more Boeing (NYSE: BA) and Airbus products, even plane delays haven't dampened the support it gets from investors like CAPS All-Star ll0o0ll: "New Boeing and Airbus planes contain higher share of composite materials that the company provides."

That's a view also taken by CAPS player moshdaddy, who writes, "Backlog at Boeing - bodes well for these guys and pricing power ... although delays may hurt inventories in the near term."

Right this way to prosperity
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 of the world are the exceptions, not 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!