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 to be a trust-fund baby to start securing your financial future. Just follow these four simple steps:
Why small caps?
Because they 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 companies with:
- Market values less than $3 billion, to qualify as a small cap (but no micro caps);
- An earnings surprise of 20% or more in the latest quarter;
- And long-term earnings growth potential of at least 20%
We'll filter our findings through the collective investing wisdom of the 160,000 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:
|
Company
|
Market Cap
|
Share Price
|
EPS Surprise
|
Median Analyst 5-Year EPS Estimate
|
CAPS Rating (out of 5)
|
|
Jinpan International (NYSE: JST )
|
$383.2 million
|
$24.08
|
115%
|
20%
|
*****
|
|
Questcor Pharmaceuticals (Nasdaq: QCOR )
|
$416.7 million
|
$6.81
|
44%
|
25%
|
***
|
|
Sonic Solutions (Nasdaq: SNIC )
|
$336.1 million
|
$10.80
|
NC
|
20%
|
*
|
|
TiVo
|
$1.8 billion
|
$16.67
|
25%
|
40%
|
**
|
|
Xinyuan Real Estate
(NYSE: XIN )
|
$316.5 million
|
$4.14
|
113%
|
35%
|
*****
|
Source: Yahoo.com; NC=not calculable. Sonic Solutions earned $0.02 vs. estimate of ($0.05).
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, so let's start with those favorites.
An alternative opportunity
If China continues growing as it has, the journal Science says, it could meet all of its electricity needs through wind power by 2030. We know Vestas and General Electric (NYSE: GE ) will be eyeballing such prognostications closely, but cast-resin transformer maker Jinpan International is likely to benefit as well because its transformers are a key component for high-voltage electricity distribution.
Jinpan International seems to be planning for such growth with its recent 2-for-1 stock split, which it hopes will make its shares more liquid and perhaps more attractive to institutional investors. CAPS member symie5 views Jinpan as a play on China's infrastructure; that's no doubt part of the reason why 98% of CAPS members who rate it believe it will outperform the market.
China's real estate sector will also benefit as the expanding middle class looks for more and better housing. CAPS member dreamingofpowder doesn't think a bubble has formed yet, so Xinhan Real Estate ought to grow even more.
Back to the lab
Biopharmaceuticals have been bubbling up lately, with SciClone Pharmaceuticals (Nasdaq: SCLN ) getting a big upgrade, Sequenom (Nasdaq: SQNM ) showing some monster potential, and Questcor Pharmaceuticals beating analyst expectations despite higher operating costs as it focuses on multiple sclerosis therapy Acthar.
CAPS biotech guru zzlangerhans thinks a simple return to form doesn't justify the spike in Questcor's stock price.
Don't get me wrong, it's good that the lousy numbers from Q3 didn't continue, but a return to prior form doesn't justify this kind of response. I don't think recent buyers are going to want to keep holding through the next quarterly numbers or the PDUFA for Acthar in infantile spasms on June 11.
A sonic boom
Back in November, UltraContrarian highlighted a handful of reasons why digital media specialist Sonic Solutions wasn't worth the price it was trading at. After the company released third-quarter results last month that didn't wow anyone, another CAPS All-Star, nesselsdorf1187, also gave it a thumbs-down.
Retained earnings worth negative 135M, clearly a sign of successful past.
Head over to the Sonic Solutions CAPS page and let us know what you think about this company.
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.
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