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. 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 you  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 huge companies like Intel (Nasdaq: INTC  ) have more than 25 or 30 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. 

Drumroll, please ...
Without further ado, here are five CAPS stocks sporting a rating of four or five stars (out of five), that have market caps between $100 million and $300 million, and that four or fewer professional analysts are covering.

Company

Market Cap
(in Millions)

Number of CAPS Ratings

Analysts

Current Analyst Recommendation

Alamo Group

$240.5

49

One

Buy

ActivIdentity (Nasdaq: ACTI  )

$133.3

287

Two

Buy

China Electric Motor (Nasdaq: CELM  )

$132.1

48

One

Buy

Computer Task

$129.7

46

One

Buy

Euroseas (Nasdaq: ESEA  )

$121.5

861

Three

One Buy, Two 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, China Electric Motor and ActivIdentity might be a pair of small wonders worthy of your due diligence.

Micromotoring
IPOs aren't exactly the most prudent investments you can find. But sometimes the bullishness is so overwhelming that it's hard not to have a closer look. Despite having gone public little more than two months ago, Shenzhen-based Chinese Electric Motor has been rated as an outperformer by all 16 CAPS All-Star members who've contributed their opinion.

For these bulls, it's all about growth. Over the past three years, the micromotors manufacturer has compounded revenue and earnings at whopping rates of 75% and 79%, respectively, so there's a chance we could be staring a baby Nidec or Emerson Electric (NYSE: EMR  ) in the face. Hey, we Fools can dream, can't we?

Of course, with a paltry forward price-to-earnings ratio under 6, investors won't have to pay a big price to bet on those dreams coming true.

"They have a niche in the electronic motor industry," CAPS member cecamadocv said last week. "With little to no competition, all they need to do is have management lead them the right way (harder said then done), but overall I like this company long term."

Authentic opportunity
ActivIdentity is another stock in the long tail that piques the interest of our community: 96% of the 74 All-Star members who've rated the stock are bullish.

As a small-fry specializing in credential management solutions, ActivIdentity is well-liked by our community as a way to get in on the growing security services industry. The company's blue-chip roster of tech partners, including Cisco (Nasdaq: CSCO  ) , Oracle (Nasdaq: ORCL  ) , and VMware, offers Fools added security that the company is, indeed, an "authentic" way to play.

With zero debt and $71.4 million in cash against a market cap of just $133 million, ActivIdentity is certainly worth a look.

"Sometimes the market gets too busy looking for the next market runner, that it will ignore a whole sector of them," CAPS member 21popsontop wrote. "Security is here until doomsday and favor with the market is just a matter of crime time."

Are we on the same microwavelength?
But the real question is whether you believe these companies are real micromarvels or just small shrimps waiting to get squished. Log on to CAPS and let us know how you feel.

It's absolutely free and quickly provides access to thousands of potential stock ideas. Join now -- more teeny tiny treasures await their discovery.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Intel is a Motley Fool Inside Value pick, Emerson is an Income Investor choice, and VMware is a recommendation of Rule Breakers. Motley Fool Options has recommended a buy calls position on Intel, and the Fool has created a covered strangle position on it. The Fool owns shares of and has written puts on Oracle. The Fool's disclosure policy is never too small to be seen.


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