This article is part of our Rising Star Portfolio series.

Today, my search continues for some great small- and mid-cap stocks to add to my real-money "multivitamin" portfolio. Yesterday, I revealed the results for this month's Foolish 8 screen and came up with 12 candidates. Today, we turn to the Modified Foolish 8.

Mod squad
For a refresher, here's a summary of the changes I made to turn the
Foolish 8 into the Mod-8:

  • Raised the revenue cap to $900 million or less.
  • Took the $25 million limit off the daily dollar volume requirement, making it simply $1 million or greater.
  • Loosened the relative strength requirement to 50 or greater.
  • Required not only positive cash flow, but also positive free cash flow.
  • Required a price-to-free-cash-flow-to-cash-flow growth (PFCF-to-FCF growth) multiple of 1 or less. I have tweaked the screen to use actual FCF growth over the past year.
  • Required greater than 15% return on equity over the past four quarters, and for each of the past three fiscal years.

According to the independent American Association of Individual Investors, the Mod-8 has an average annual growth rate of 20.2% from January 1998 through May 2011. The S&P 500 averaged 2.5% annually over that period. (Disclaimer: The AAII methodology involves buying a stock the month it appears on a screen and selling when it's off -- something we'd never do. Still, this performance points to the screen's strong potential.)

Only three companies pass the screen this month.

Company

Market Cap (millions)

Business

Add to Your Watchlist

NetEase.com (Nasdaq: NTES)

$6,187

Internet software/services

Add

iGATE (Nasdaq: IGTE)

$943

Information technology consulting

Add

LSB Industries (NYSE: LXU)

$967

HVAC and chemical products

Add

Source: Capital IQ, a division of Standard & Poor's.

lululemon athletica (Nasdaq: LULU) and Ebix (Nasdaq: EBIX) dropped off the screen from last month. Digging deeper:

Company

Insider Ownership

Forward P/E

EV/FCF (TTM)

ROE

Net Margin

NetEase.com

45%

19.1

17.9

27%

43%

iGATE

47%

18.5

33.1

17%

19%

LSB Industries

17%

52

23.1

26%

7%

Source: Capital IQ, a division of Standard & Poor's.

Onward and upward
In the coming days, I'll take a close look at these companies, as well as the small caps that passed yesterday's Foolish 8 screen. I'll soon report back on whether any of them are a good fit for the portfolio.

If you're interested in keeping up with any of these companies, add them to your free watchlist by clicking the appropriate "add" button in the top table. To keep up with me, meanwhile, follow me on Twitter and check out the multivitamin discussion board. Fool on!

This article is part of our Rising Star Portfolio series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).

Fool analyst Rex Moore reminds you that pain is mandatory, but suffering is optional. At the time of publication, he owned shares of lululemon. The Motley Fool owns shares of Ebix and lululemon athletica. Motley Fool newsletter services have recommended buying shares of Ebix, lululemon athletica, and NetEase.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.