The Oracle of Omaha, Warren Buffett, turned an initial bankroll of $10,000 into a multibillion-dollar conglomerate. Shelby Davis began with $50,000, and he amassed a $900 million fortune. These inspiring stories give us all hope that we'll be able to achieve our own financial dreams. But what if you don't have $50,000, or $10,000, or even $5,000 to get started?
Fear not, Fool -- you aren't doomed to penury and misery. You don't need to be a trust fund baby to start securing your financial future. Just follow these four simple steps:
- Start today!
- Invest regularly. Every month, put away $250, $100, even $50.
- Look to the stock market for your best hope of realizing your dreams.
- Seek undervalued small-cap stocks for your greatest returns.
Why small caps?
Because they offer the greatest potential for market-beating returns. Institutions tend to ignore these tiny stocks, and analysts don't cover them. By the time anyone realizes they're there, they've already grown and appreciated in price.
To find these future giants, we'll screen for stocks with:
- Market values less than $3 billion, to qualify as a small cap (but no micro caps)
- Earnings surprise of 20% or more last quarter
- Long-term earnings growth potential of at least 20%
We'll filter our findings through the collective investing wisdom of the more than 140,000 professional and novice investors in our Motley Fool CAPS community. If the best and brightest CAPS players think these stocks hold potential, then we ought to take notice, too.
Here are some of the stocks this simple screen found:
|
Company |
Market Cap |
Share Price |
EPS Surprise |
Median Analyst 5-Year EPS Est. |
CAPS Rating |
|---|---|---|---|---|---|
|
American Superconductor (NASDAQ:AMSC) |
$1.4 billion |
$31.76 |
46% |
18% |
** |
|
China Information Security Technology (NASDAQ:CPBY) |
$310.8 million |
$6.37 |
21% |
23% |
**** |
|
IMAX (NASDAQ:IMAX) |
$583.0 million |
$10.56 |
150% |
30% |
*** |
|
L-1 Identity Solutions (NYSE:ID) |
$500.8 million |
$5.83 |
100% |
20% |
**** |
|
Onyx Pharmaceuticals (NASDAQ:ONXX) |
$1.5 billion |
$26.38 |
27% |
20% |
**** |
Source: Earnings.com; Zacks.
Of course, this is not a list of stocks to buy. This is a starting point for more research. We need to look more closely at these companies to see if analysts' faith in them is well-founded, but we've got the CAPS community helping us here, and we'd do well to begin with their favorites.
A dull blade
Large-format movie house IMAX reported some bigger-than-life earnings this morning that ought to play to a packed audience. Solid profitability coupled with some eye-popping expansion plans means investors like CAPS member rowdystyle, who were counting on growth to put its name up in lights, bought the right ticket and got front-row seats to the show:
Huge expansion in other countries and continuing expansion and popularity in the United States are my main reasons for the outperform prediction.
IMAX swung to a $0.02 per share profit in the third quarter (compared to a $0.05 loss last year), even after taking a $0.06 charge for stock option expenses. Analysts had been expecting just a $0.01 per share profit. In comparison, Kodak (NYSE:EK) lost $81 million as sales fell 26%.
At the heart of its growth prospects heating up was the conversion to digital formats. At the end of the third quarter, IMAX had 117 digital systems in operation compared to just 14 last year. It said it will be installing an additional 28 to 32 IMAX systems in the coming quarter, putting it ahead of the 25 to 30 systems installation pace for 2009 that it had previously guided to.
Having tripled in value over the past year, IMAX doesn't need rumors of a Disney (NYSE:DIS) buyout to prop up its stock these days. But it remains difficult to value it on an earnings basis when it's just returning to profitability, and even with analysts predicting long-term growth of 30%, it seems a little expensive compared to those expected profits. IMAX shares no longer pop out at you in 3-D as the bargain basement brand they once were.
I'd be willing to settle back with an oversized bucket of popcorn and wait for the market to give us a better buy-in price.
Foolish final thoughts
Academics will tell you that individual investors have little chance of beating the stock market. They say the Warren Buffetts, Shelby Davises, and Peter Lynches are the exceptions to the rule. We at The Motley Fool don't agree. Stock investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think.
It is possible to make a more comfortable retirement for yourself, even if you have little money to start with or are starting late in life. It is possible to turn $100 into $1 million. You just have to commit: Do it now, and do it regularly. No amount is too small. Let's get started. There's no time to lose!
