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
|
CAPS Rating
|
|---|---|---|---|---|---|
|
American Dairy (NYSE:ADY) |
$547 million |
$25.19 |
68% |
100% |
**** |
|
Art Technology (NASDAQ:ARTG) |
$529 million |
$4.17 |
33% |
22% |
*** |
|
China-Biotics (NASDAQ:CHBT) |
$331 million |
$14.80 |
24% |
32% |
***** |
|
ISTA Pharmaceuticals (NASDAQ:ISTA) |
$144 million |
$4.34 |
NC |
25% |
***** |
|
Par Pharmaceutical (NYSE:PRX) |
$838 million |
$24.07 |
57% |
53% |
*** |
Sources: Earnings.com; Zacks. NC = not calculable. ISTA Pharmaceuticals reported EPS of $0.07 vs. ($0.01) estimated.
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 starting with their favorites would be a good place to begin.
The right prescription
Generic drug maker Par Pharmaceuticals saw revenue nearly double year over year in its latest quarter. More than half of Par's $295 million revenue came from metoprolol, the authorized generic for AstraZeneca's Toprol XL. The company also launched several new drugs to help bolster operations, and with more to come, investors could see valuations rise.
Highly rated CAPS All-Star member IBDvalueinvestin is impressed not only with Par's current portfolio of drugs, but also its pipeline:
[Par is] looking to get approvals on an additional $6.5B worth of drugs. [Par's] Total revenue nearly doubled to $294.8 million
Analysts on average expected earnings of 49 cents a share on revenue of $290.4 million, according to Thomson Reuters....
[Par] said it currently has about 27 abbreviated new drug applications pending with the U.S. health regulators, 13 of which the company believes have first-to-file or first-to-market opportunities with a brand value of about $6.5 billion.
At less than one times sales, Par Pharmaceuticals carries a far larger discount than either Teva Pharmaceuticals (NASDAQ:TEVA) or Mylan (NYSE:MYL) and is smaller than either. Yet analysts are expecting Par's average annual growth over five years to far outstrip that of its larger rivals. With about half as many Wall Street types tracking the generic drug specialist, Par looks like an underfollowed star ready to break out.
Use the comments section below to let us know if you consider the drug maker to be a generic opportunity, or head over to Par Pharmaceuticals' CAPS page and tell us your prescription for success.
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!
