You don't need the investing acumen of Warren Buffett or the riches of a trust fund baby to achieve financial success.

Since the stock market is your 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, an earnings surprise of 15% or more in the previous quarter, and forecasts for long-term earnings growth potential of at least 15%. We'll filter our findings through the collective investing wisdom of the 165,000 members in our Motley Fool CAPS community. If the best and brightest CAPS players think these stocks hold potential, we ought to take notice, too.

Here are some of the stocks this simple screen found:


Market Cap

EPS Surprise

Average Analyst 5-Year EPS Estimate

CAPS Rating (out of 5)

Affymax (Nasdaq: AFFY)

$137 million

$0.70 vs. $0.25



China MediaExpress Holdings (Nasdaq: CCME)

$284 million

$0.80 vs. $0.53



E*TRADE Financial (Nasdaq: ETFC)

$2.7 billion

$0.12 vs. ($0.11)



Source: Yahoo! 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. Still, since the CAPS community is helping us out, their favorite selections might be a good place to begin.

An alternative opportunity
There's a great scene from Monty Python and the Holy Grail movie where the dead collector encourages everyone to "bring out your dead." As one man tries to put one on the cart, the alleged corpse says, "I'm not dead!" Although insisting he's feeling better, the man carrying him to the cart says, "No you're not. You'll be stone dead in a moment."

This is the exchange the market has had with biopharmaceutical Affymax, which suffered a near-fatal blow when late-stage trial data showed its experimental anemia drug Hematide caused patients to suffer higher percentages of heart-related side effects resulting in death, angina, and irregular heart rhythm. Two-thirds of the company's value evaporated in the ensuing sell-off as the chance for challenging Amgen's (Nasdaq: AMGN) stranglehold on anemia treatment dimmed.

But earlier this month, Affymax said it wasn't dead either as it and partner Takeda said the results had proved it was at least as effective as Amgen's Epogen and it planned to move forward toward filing an application with the Food and Drug Administration.

CAPS All-Star zzlangerhans says Affymax might get a lift from a dead cat bounce, but otherwise feels it's time to throw the company on the dead cart. He has still marked it to outperform, though, because it has plenty of cash relative to its new (lower) market cap.

Media darling
You'd also think China MediaExpress Holdings was at death's door considering the way the market has reacted since reporting record second-quarter earnings and despite operating China's largest television ad network on intercity buses. It is in a tough fight with VisionChina Media (Nasdaq: VISN), which operates an ad network of digital TV displays on the country's buses and subway system, but All-Star sisula says China MediaExpress has great numbers to back it up.

One of those "too good to be true" Chinese companies. Great numbers, amazing growth, huge cash reserves. ... However, this one is audited by big 4 auditor (Deloitte) and was scrutinized by Starr International.

I'll drink to that
E*TRADE Financial, on the other hand, is finally starting to look fit as a fiddle, reporting its first quarterly profit in three years back in July. It generated $534 million in revenues, which handily beat analyst expectations, even though it was down 14% from the year-ago period, but it swung to a $0.12-per-share profit compared to the losses that had been forecast. That was similar to the results Charles Schwab (Nasdaq: SCHW) reported, which posted its strongest quarter in a year.

The wildcard in that report was the gains made as a result of reporting lower loan loss reserves. They dropped 38% from last year, suggesting the mortgage trouble it got itself into is becoming more a thing of the past.

Although many financial firms have reported lower reserves -- Wells Fargo (NYSE: WFC), for instance, recently released $500 million from its reserves -- the problem is that it's essentially a fund that managers can dip into to manipulate their earnings. There's a fear that companies are simply engaging in "extend and pretend" practices, and when those nonperforming loans ultimately fail, they won't have the money available when they're needed because reserves have been released.

The reverse stock split E*TRADE engineered has its stock trading in the teens, but it recently resumed a downward trajectory. CAPS member xjp83x thinks there has been a lot of negative reaction to the split, but it will be a less volatile stock going forward, while Casey89 says the earnings report shows E*TRADE is a better company than it appears: "Their earnings 2nd Q prove they are better than the price reflects but people have been scared all week and it is a good time to buy."

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!

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Charles Schwab is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletter services today, free for 30 days.

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.