Usually in this space we run articles with our efforts at making sense of small-cap stock investing. Today's column is different -- today I'll be sharing some of our readers' best small-cap stock ideas. Oh... and I'll be handing out some prizes, too. I'd like to thank all of you readers who took the time to respond to my challenge in the past couple of weeks. Before I get into the winners, however, let me throw in our usual disclaimer: these stock ideas should be considered just that -- ideas. Please do your own research before even thinking about buying any stock mentioned in this (or any other) article.
Let's get down to brass tacks. The winner in the "Best Essay" category was Don & Monica Bonnem (I'm not sure whether it was Don, Monica, or some combination of the two) with their idea, 4Kids Entertainment (NYSE: KDE). At a recent $19 a share, 4Kids has a market cap of about $240 million. The company has $120 million in cash, and Don and/or Monica argue that the stock has been unfairly targeted by short sellers as a "one-trick pony." You can read their essay in its entirety by clicking on the Foolish 8 discussion board. I liked the essay, but I would caution about the high level of short interest, which according to Yahoo! Finance is in the neighborhood of 20%. A stock doesn't attract a lot of short interest for no reason, and you'll need to be aware that there are a lot of smart folks on the other side of your trade if you choose to buy, so do your research!
For the category of "Best Use of Bullet Points in a Stock Argument," the winner was Ricardo Neves with his stock idea, Dynacq International (Nasdaq: DYII). According to the Quicken One-Click Scorecard, Dynacq passes seven of the Foolish 8 criteria, missing only on insider ownership. Yahoo! shows insiders owning 63% of the stock, so depending on who has the better database, it might be eight-for-eight. Regardless, Dynacq certainly qualifies as an interesting small-cap growth stock idea, and you can read Ricardo's entry in the Foolish 8 discussion board.
Al Winkleman wins the award for use of the term "Flowie" in his entry. Referring, of course, to the Foolish Flow Ratio about which we've written many times in this space, Al notes that his entry, Gentner Communications (Nasdaq: GTNR), is growing at a rate of 30% per year, has a strong balance sheet, and may benefit from the increased use of video conferencing should that become a growing trend.
Another Flow Ratio aficionado was Ted Bajer, who takes home the award in the "Best Use of a Foolish Metric in Driving Company Management Nuts" category. In his entry on Cardiodynamics International (Nasdaq: CDIC), Ted tells a great story about actually using his Flow Ratio analysis to bring to the attention of company management at the annual meeting his concern about rising accounts receivables. Cardiodynamics isn't a prototypical Foolish 8 company, having only recently turned their first profitable quarter. Nevertheless, it's an interesting story and I have to give anyone an award who actually attends an annual meeting and questions management on balance sheet stuff! I have also posted Ted's entry on the Foolish 8 discussion board.
The winner in the fiercely contested "This Stock Is Pretty Much Making Money Except for the Fact That It Isn't" category is John Barthel with his pick, LifeCore BioMedical (Nasdaq: LCBM). Despite John's rather interesting lead-in, I think his pick isn't half bad. LifeCore recently became the first company to win FDA approval for a product by a dispute resolution panel under a system to mediate disagreements between the FDA and medical device companies. LifeCore is expected to launch their new gel for the prevention of surgery-related abdominal and gynecological scarring this fall.
The winner in the "Cut and Paste From a Recent Earnings Press Release" category is Peter Mondello, who I really shouldn't reward for his laziness. Nevertheless, I like his stock idea, Visible Genetics (Nasdaq: VGIN), which recently announced the approval of its Trugene HIV-1 diagnostic product.
The winner for the "I Doubled in Price While I Was Waiting for You to Announce the Winners" category was Tom Gates, whose stock idea, Westar Financial (OTC: WEST), has increased in price from about $9 to over $20 just in the time since Tom submitted his idea. Westar doesn't trade on the major exchanges, so I personally can't recommend it, but I bet Tom is one happy camper by now.
Finally, the award for the "Most Honest Entry" goes to Jeffrey Kovnick, who entered a penny stock with a market cap of $36 million and trailing 12-month losses of $48 million. Jeffrey's rationale was "the main reason I like it is that I own a lot of shares and I hope that it will go up and I will not lose my shirt on it." Well, Jeffrey, we here at The Motley Fool really appreciate that kind of honesty, though I have two words of advice for you: index fund.
I'm sure that you are wondering what's in store for our lucky winners (yes, including Jeffrey). Well, since each of our winners sent us their best small-cap stock ideas, we're going to send them our best investment ideas every month for a whole year. That's right, each of our winners will receive a one-year paid subscription to The Motley Fool Select. (If any of you are already subscribers, please let me know and I'll try to send you an authentic Tom Gardner-worn Motley Fool T-shirt or something.)
I'd like to thank everyone who took the time to send in an entry to our contest. And if you're looking for small-cap stocks, I invite you to join us in our upcoming Succeeding With Small Caps online seminar. Not only will it help you identify potential winners, it'll help you spot signs of trouble and help you take advantage of volatility. Take a look if you think you might be interested.
We'll be back next week with our regularly scheduled programming. Until then, keep looking for those small-cap investing gems!
