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 170,000 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:
Avg. Analyst 5-Year EPS Est.
||$2.0 billion||$0.23 vs. $0.10||24%||***|
||$1.4 billion||$0.36 vs. $0.22||21%||**|
Smith & Wesson Holding
||$230 million||$0.06 vs. $0.05||18%||****|
Source: Yahoo.com and Motley Fool CAPS. EPS = earnings per share.
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, its favorite selections might be a good place to begin.
An alternative opportunity
Ugg boots have been a powerful brand for Deckers Outdoor, though most consumers probably couldn't name the company behind them. That's OK, though, since many parents probably don't know that Pampers diapers are made by Procter & Gamble and do-it-yourselfers might not be aware that power tools under the brand names of Porter-Cable, Bostitch, Husky, and Mac are all made by Stanley Black & Decker.
Ugg boots have been the main driver of Deckers' 32% compounded annual growth in revenues over the past five years, but therein lies the risk for investors: being beholden to just one product raises the stakes should the product stumble.
That could be what's on the minds of the CAPS members who think it will ultimately underperform the market. (Only 17% of those rating the company give it a thumbs-down.) Hotpicks101, however, thinks Deckers is a smart retail investment, particularly with the upcoming holiday season:
Great past performance and growth. Trades at a low pe for such a high growth company. Playing the retail comeback along with holiday season coming up. Don't think its just a fad.
Not sure if Deckers Outdoor is right for your portfolio? Add it your My Watchlist page and have all the Foolish news and analysis about this stock aggregated in one place.
I'll drink to that
The decision by the Chinese government to raise interest rates by a quarter of a percent slammed not only LDK Solar, but JA Solar
Look at what happened in Spain and you can see why investors are nervous. The government there lured companies in with promises of sweet subsidies only to cut them when they realized they were actually going to have to pay for it. Now many Spanish solar investors dance on the brink of bankruptcy.
With more than 1,400 CAPS members weighing in on LDK, there's no deficit of opinion; 93% believe the solar shop will outperform. Add your thoughts on the LDK Solar CAPS page and let us know if investors here will get burned like they did in Spain.
Man the ramparts
With dealers being more selective about their inventory, gunslinger Smith & Wesson last month posted tough first-quarter numbers that failed to provide the shoot 'em up investors were looking for. The urgency to buy guns now, before it's too late, apparently dissipated as health care and the economy dominated public debate and fears that the Obama administration would limit our Second Amendment rights never seemed to materialize.
The lack of sales shouldn't have come as much of a surprise, since a drop in the number of background checks earlier this year portended fewer of them. Yet at nine times trailing earnings, does that make Smith & Wesson a buy? The only other publicly traded handgun maker, Sturm, Ruger
CAPS member Reddrummer agrees, saying Smith & Wesson has a couple of jams it can't clear, but 94% of the CAPS members rating the company believe it's on target to post market-beating results. You can add your opinion on the Smith & Wesson Holding CAPS page on whether it's locked and loaded for growth.
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.