5 Top Micro-Cap Stocks

Hey there, Fools. We're back to help you identify some of the most attractive micro-cap stocks worthy of your investment dollars. Just as a reminder, 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 to outperform or to underperform. In turn, each investor is rated, as is each stock.

The end result is that while only huge companies like Merck (NYSE:MRK) have more than 15 or 20 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 ...
So without further ado, here are five CAPS stocks sporting ratings of four or five stars, that have market caps between $100 million and $200 million, and that three or fewer professional analysts are covering.

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, Continucare and BluePhoenix Solutions might just be a pair of small wonders worthy of your Foolish due diligence.

CAPS cares
Once again, our CAPS community has managed to find a small way to play the aging U.S. demographic. This time, the company is called Continucare, which provides primary-care physician services. Through a network of 18 medical offices, the company serves more than 40,000 patients, making it one of the largest staff medical providers in Florida -- a pretty good state for baby boomers, if you ask me. 

Over the past five years, Continucare has leveraged agreements with major HMOs -- including Humana (NYSE:HUM) and Wellcare -- to deliver compounded revenue and operating cash flow growth of 15% and 269%, respectively. With the company set to open its new line of ValuClinic health centers, a "quick and convenient" retail-based concept, Continucare might be one to keep an eye on.

CAPS All-Star hirshey cared enough to continue with this pitch:

Company is undervalued as price/sales and price/book value indicate. A healthy balance sheet combined with enormous growth potential make this stock a buy. Earnings should increase after margins are improved due to cost-cutting and improved process management.

Phoenix rising
BluePhoenix is another stock in the long tail that piques the interest of our CAPS players. Last May, my Foolish colleague Rich Smith singled out the software company, which is based in Herzlia, Israel, as a mysterious, obscure, and attractive five-star bargain. At the time, BluePhoenix had just 33 CAPS ratings, with one single measly pitch written about it, and was trading for less than $10.

Fast-forward to today, when BluePhoenix has 179 outperform calls and a total of 18 bullish write-ups, and, with the help of the 17% increase in its price on Thursday, opened Friday morning at $13.10. Sweet call, huh? The shares jumped after BluePhoenix said it intended to purchase Amalgamated Software North America -- an acquisition that, according to the company, should expand its market by $5 billion.

I can't address how accurate that is, but BluePhoenix's 10 consecutive quarters of sales growth, coupled with its partnerships with IBM, EDS, and Matrix, suggest that management does have some clue about what it's  doing.  

CAPS player TheStreetBull made this forecast just a few weeks ago:  

I've done a ton of research on this company and agree with the few analysts covering it that this thing is going to absolutely fly! Do your homework on the numbers (the earnings growth is a dream) and you will notice that even nearing $15, BPHX is still cheap. I am in for the long term with this one and think it's going to roll higher right on through the year.

Are we on the same micro-wavelength?
But, of course, the real question is whether you believe these companies are real micro-marvels or just small shrimps waiting to get squished. Log in to CAPS and let us know how you feel.

It's absolutely free, and, within seconds, you'll have access to thousands of potential stock ideas. Join now -- more teeny treasures await discovery.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is never too small to be seen.