You don't need the investing acumen of Warren Buffett or the riches of a trust-fund baby to achieve financial success.
Because the stock market is your best hope for realizing your dreams, start investing today, by putting away small sums of money every month. Then seek out undervalued small-cap stocks for your greatest returns. I like these stocks because they offer opportunities for growth, while still being mostly overlooked by the big investors.
To find these future giants, we'll screen for stocks with market values less than $3 billion, an earnings surprise of 15% or more in the previous quarter, and forecasts for long-term earnings growth potential of at least 15%. We'll filter our findings through the collective investing wisdom of the 165,000 members in our Motley Fool CAPS community. If the best and brightest CAPS members think these stocks hold potential, we ought to take notice, too.
Here are some of the stocks this simple screen found:
|
Company
|
Market Cap
|
EPS Surprise
|
Average Analyst 5-Year EPS Estimate
|
CAPS Rating
(out of 5)
|
|
Orient Paper (AMEX: ONP )
|
$124 million
|
$0.21 vs. $0.17
|
25%
|
***
|
|
SMART Modular Technologies (Nasdaq: SMOD )
|
$305 million
|
$0.26 vs. $0.19
|
18%
|
****
|
|
Zix (Nasdaq: ZIXI )
|
$136 million
|
$0.01 vs. $0.00
|
20%
|
***
|
Source: Yahoo.com and Motley Fool CAPS.
Of course, this is not a list of stocks to buy -- just a starting point for more research. We need to look more closely at these companies to see whether analysts' faith in them is well-founded. Still, since the CAPS community's helping us out, their favorite selections might be a good place to begin.
An alternative opportunity
Short-sellers are never particularly popular among investors, and Chinese paper products maker Orient Paper finds itself embroiled in a tug of war over longs and some very specific short-sellers who produced a research report claiming it was a fraud. With a market cap of just over $100 million, the company isn't in a league with large paper mills like International Paper, but growth opportunities have to start somewhere.
One point of contention is whether Orient Paper owns a particular subsidiary or it's simply a company with a similar sounding name. Orient says it does not own it; the researchers claim it does. Millions of dollars in recognized revenue hang on the outcome. The stock was initially hammered by the report, getting cut nearly in half from $8 a share, but quickly rebounded after Orient Paper responded to the charges.
Although many who have commented on the Orient Paper CAPS page dismiss the allegations -- and 95% of those rating the company think it will outperform the market -- investors should be cautious until the situation clears up. Fraud can occur anywhere, but in a new capitalistic market where reporting isn't as clear, and guanxi, or relationships, count a lot, it's something extra to think about.
Recent concerns regarding China Marine Food Group (AMEX: CMFO ) , Fuqi International (Nasdaq: FUQI ) , and China Sky One Medical (Nasdaq: CSKI ) should give you pause before putting real money here. There will always be more chances down the road to invest if nothing comes of the charges.
Wicked smart
SMART Modular Technologies sells memory modules on the specs original equipment manufacturers give to system builders, and the top names in tech are among its customers. Hewlett-Packard, Dell, and Cisco (Nasdaq: CSCO ) accounted for nearly half its revenue in the latest quarter. The company is expanding its business into enterprise-level solid-state drives and consumer-based flash and it returned to profitability in the latest quarter. SMART has even projected adjusted earnings and revenue that would surpass analyst expectations for the fourth quarter. Yet the stock continues to drop.
CAPS member 21popsontop finds SMART's new lower price and industry-heavy support to be an attractive entry point.
It's Smart. It's Modular,and It's Technology selling under book value and well under revenue a share. Showing nice growth with strong customer backing going into 2010 Good enough,ha!ha!
The secret service
Changing its business model might be just what Zix needed to do. It went from offering both e-prescription business and an email encryption service to one focusing just on email encryption. Revenue from that line of work jumped 20% over last year in the year-ago quarter and gave it its first-ever GAAP profit. With new federal and state regulations requiring protection for information in transit, Zix should have a strong basis on which to grow. Yet nearly 30% of the CAPS members rating the company think it will underperform the broad market averages.
Do you think Zix will lead or lag? Head over to the Zix CAPS page and tell us what you think.
Foolish final thoughts
Investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think. You just have to commit to starting now, and do so regularly. Now's the time to begin.
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