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5 Small-Cap Stocks on Fire

Dan Dzombak
January 31, 2011

Most investors don't keep tabs on their companies' fundamental value. That's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home run stocks that provide the market's best returns.

We can help you keep tabs on your companies with, our free, personalized stock tracking service. Here are five stocks from my watchlist that have been hot lately.

1. Capstone Turbine (Nasdaq: CPST  )
Capstone caught my eye after it had risen 55% over the past three months. Capstone makes microturbines that run off various fuel sources and allow customers to produce power and heat on-site, as opposed to relying solely on the electrical grid. Last quarter, its revenue rose 22% year over year, while its backlog increased 41%. Those gains and subsequent orders have led to the stock taking off these past three months. Capstone reports third-quarter earnings on Monday, and hopefully the company will continue its trend of posting improved results.

2. Avanir Pharmaceuticals (Nasdaq: AVNR  )

Avanir Pharmaceuticals caught my eye after it had risen 72% over the past three months. At the end of October, the company's shares doubled when the FDA approved Nuedexta, the firm's treatment for pseudobulbar affect (PBA). Neudexta has no competition right now as it is the only drug approved to treat PBA. This provides a big opportunity, though not huge, and analysts estimate the drug could attain as much as $500 million annually in sales. However, that would be a huge deal for Avanir, which over the past 12 months had only $3 million in sales. The company is a good candidate for a buyout from a big pharmaceutical looking to build out its portfolio and is definitely one to watch.

3. Power-One (Nasdaq: PWER  )
Each week, I cull a top stock idea from the pitches made on CAPS. Power-One was a pick in November and has since risen 17%. To follow my weekly picks, you can subscribe to the series' RSS feed or follow it on Twitter.

4. Oilsands Quest (NYSE: BQI  )
Oilsands Quest is continuing on its quest to find oil. Its stock has risen 30% over the past three months after falling 70% in the preceding year. Unlike other speculative oil plays such as ATP Oil & Gas (Nasdaq: ATPG  ) , which has producing wells and cash flow, Oilsands Quest is in the development stage, a euphemism meaning that it hasn't produced oil yet. It has spent quite some time trying to profitably drill in Canadian oilsands, but after numerous setbacks the company tried to sell off some of its assets to continue operating, a strategy that worked for Delta Petroleum (Nasdaq: DPTR