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:
|
Company |
Market Cap |
EPS Act. vs. Est. |
Avg. Analyst 5-Yr. EPS Est. |
CAPS Rating |
|---|---|---|---|---|
| American Superconductor (Nasdaq: AMSC) |
$1.4 billion |
$0.33 vs. $0.27 |
35% |
** |
| Avanir Pharmaceuticals (Nasdaq: AVNR) |
$491 million |
($0.11) vs. ($0.14) |
56% |
** |
| Gulf Resources (Nasdaq: GFRE) |
$320 million |
$0.43 vs. $0.35 |
19% |
**** |
Source: Yahoo.com 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's helping us out, their favorite selections might be a good place to begin.
An alternative opportunity
You could say American Superconductor has the wind at its back. The strong third-quarter earnings report featuring profits that tripled is also its sixteenth consecutive quarter of sequential revenue growth.
But that doesn't mean it's not facing headwinds. Much of its business still comes from one customer, China-based Sinovel but it's pursuing a business model that differentiates it from A-Power Energy Generation Systems (Nasdaq: APWR) that could lessen the blow. It sells designs to other manufacturers rather than manufacturing the device itself, then supplies them with sales of electrical components.
At just 17 times forward earnings American Superconductor is relatively cheap, and insiders have been scooping up shares. CAPS member bentjeans agrees, believing the trends in China are blowing in the right direction:
Ya gotta love a stock that SELLS product to China! Plenty of new wind farms slated for the coming years and they are going to have to buy all of their grid interconnect materials somewhere.
Making a connection
With no competition in treating pseudobulbar affect (which is the sudden, uncontrollable onset of a crying jag), analysts say Avanir Pharmaceuticals can generate more than $500 million in peak U.S. revenue for its therapy, Neudexta.
We've speculated before that Novartis (NYSE: NVS) might be one pharmaceutical interested in acquiring Avanir because of its strong focus on central nervous system disorders, and it just showed it's not adverse to making strategic acquisitions, as it just agreed to buy Genoptix (Nasdaq: GXDX) for $470 million. And that's right after it also bought Alcon (NYSE: ACL).
Independent or as part of a larger multinational, CAPS member alexis4444 thinks Avanir's therapy has potential:
I own it I hope it does well. I thiink they have a good product now it all depends on their marketing and sales.
You can keep an eye on its progress by adding Avanir to your watchlist.
Man the ramparts
Bromine developer Gulf Resources is still being weighed down by allegations of impropriety that have afflicted so many Chinese small caps these days. Back in December, the company effectively rebutted the charges against it, but with the perp walk of infamy these days, investors seem to be taking a wait-and-see approach. At just five times forward estimates, though Gulf is exceptionally cheap considering the growth prospects analysts have calculated for it.
Considering the strong financials Gulf reported, ashah915 says this is a company that should do well:
A lot of cash, strong balance sheets, no debt. Company is based in China, and has great potential in the industry it is in.
You can add the bromine maker to the Fool's free portfolio tracker to keep an eye on what direction it's heading, then head over to the Gulf Resources CAPS page and give us your opinion on these murky allegations.
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!
