Peter Lynch is famous not only for his enviable track record as the 13-year head of Fidelity Magellan, but also for his quirky investment strategies. The market's best stocks, according to Lynch, are small, growing companies flying below Wall Street's radar, underpriced relative to their growth potential.

It makes sense, after all, to pick out the strongest companies with the greatest chance of being overlooked -- and thus mispriced. As investors, we should all take advice from the man who not only gave fund holders a 28-bagger, but actually coined the investing term "-bagger."

With that in mind, we used the CAPS screening tool to find stocks Peter Lynch might love. Below are seven companies, each covered by no more than five CAPS-rated Wall Street analysts.

These companies also have:

  • Three-year annual earnings-per-share growth greater than 25%, showing robust expansion.
  • PEG ratios below 1.0, indicating a possible mispricing.
  • Market capitalizations less than $2 billion, since small caps are more easily overlooked.
  • Four-star or maximum five-star ratings from our CAPS community.

Company

Market Cap (in millions)

Analyst Coverage

3-Year Annual EPS Growth

PEG Ratio

AgFeed (Nasdaq: FEED)

$140

1

34.5%

0.60

Almost Family (Nasdaq: AFAM)

$331

4

40.8%

0.60

China Education Alliance (NYSE: CEU)

$129

2

55.6%

0.27

China Fire & Security Group (Nasdaq: CFSG)

$314

4

25.2%

0.29

ClickSoftware (Nasdaq: CKSW)

$160

2

60.7%

0.62

Gulf Resources (Nasdaq: GFRE)

$334

2

25.6%

0.50

Universal Travel (NYSE: UTA)

$125

1

36.1%

0.21

Data from Motley Fool CAPS and Yahoo! Finance; as of 6/11/2009.

Of course, screens are merely a first step in the stock-selection process. Come and join us on Motley Fool CAPS, to let the collective wisdom of our 165,000-strong CAPS community help you make your investment decisions.

At the time of publication, Fool editor Ilan Moscovitz didn't own shares of any stocks mentioned. The Fool has a disclosure policy.