Achieving financial success doesn't require the investing acumen of Warren Buffett, or the inheritance of a trust fund baby. Since the stock market is our best hope for realizing your dreams, start investing today, by putting away small sums of money every month. Then seek out undervalued small-cap stocks for your greatest returns. I like these stocks because they offer opportunities for growth, while still being mostly overlooked by the big investors.

To find these future giants, we'll screen for stocks with market values less than $3 billion, earnings surprise of 15% or more last quarter, and long-term earnings growth potential of at least 15%. We'll filter our findings through the collective investing wisdom of the 160,000 members 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:


Market Cap

EPS Surprise

Avg. Analyst 5-Yr EPS Est.

CAPS Rating

Accuray (Nasdaq: ARAY)

$354 million

$0.04 vs. $0.01



Itron (Nasdaq: ITRI)

$2.6 billion

$1.01 vs. $0.62



Sotheby's (NYSE: BID)

$2.0 billion

($0.03) vs. ($0.19)



Source: Yahoo! Finance and Motley Fool CAPS.

Of course, this is not a list of stocks to buy -- just a starting point for more research. We need to look more closely at these companies to see whether analysts' faith in them is well-founded. But as long as we've got the CAPS community helping us here, examining their favorites would be a good place to begin.

An alternative opportunity
Like the Da Vinci system from Intuitive Surgical (Nasdaq: ISRG), the CyberKnife from Accuray is quickly proving its utility to surgeons, and it may likely become the next can't-do-without device in the operating room. Using image-guidance technology and a compact linear accelerator to blast cancerous tumors with targeted radiation, the technology has also attracted the attention of Varian Medical (NYSE: VAR), which is now hawking its own version.

CAPS member angliatzi thinks the health-care reform bill will prompt these devices to proliferate:

I believe that with the growing number of medically-insured people, the new regulations, and the need to be more cost-effective this stock will skyrocket. People will actually be able to afford these procedures because of their health insurance and their insurers cant deny them coverage, thus widening the poolof applicable candidates for this surgery.

Meter maid
Meter maker Itron is out to prove we're smart enough for the smart grid. Revenue in the last quarter jumped 29%, and the company's expecting a whole bunch of new orders as utilities finalize their plans for building out their smart grid applications.

Although some utilities are being criticized for dragging their feet in rolling out new capabilities, others, like Exelon (NYSE: EXC), have distributed millions of meters to their customers. Google (Nasdaq: GOOG) has also partnered with Itron and a number of power companies to incorporate their technology into its PowerMeter software, even though it really doesn't need either. If the utilities wait too long to fully implement the technology, Google just might do an end run around them.

CAPS member greymon likes the potential the metering systems hold, but wonders whether there's as much steak as sizzle in them:

I do with some reluctance, because I think spending on smart grid (read "more meters") will increase in the near term ... but I think there will eventually be fallout based on overhyped expectations, resulting in canceled orders. We'll see.

In the eye of the beholder
In yet another sign the public has already forgotten the lessons of the recession, art auction house Sotheby's recently reported that it sold $190 million worth of postwar and contemporary art, with works by Andy Warhol and Mark Rothko going for tens of millions of dollars each.

Yes, art is an investment, and it can hold its value. But when the recession hit and the oil billionaires of Russia and the Middle East weren't as rich as they had been, the art market dried up. Many art owners simply held onto their pieces, rather than letting them go cheap. They correctly guessed that prices would recover, though that seems to suggest the art world is once again operating on the "greater fool" theory.

While 1Ed1 sees a race upwards materializing again, CAPS member tgauchat has a different outlook: "This bubble needs a some deflating ... perhaps not a pop for [Sotheby's] though; but the current run cannot be sustained."

Foolish final thoughts
Stock investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think. You just have to commit to starting now, and do so regularly. Now's the time to begin!

Sotheby's is a Motley Fool Hidden Gems choice. Exelon is an Inside Value pick. Google and Intuitive Surgical are Rule Breakers recommendations. Motley Fool Options has recommended a write puts position on Exelon.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.