You don't need the investing acumen of Warren Buffett or the riches of a trust-fund baby to achieve financial success.
Small sums of money invested monthly in undervalued small-cap stocks offer hope for your greatest returns. They offer the best opportunities for growth because they're mostly ignored by the big investors.
Below we screen for stocks under $3 billion in market cap, offering earnings surprises of 15% or more in the previous quarter, with long-term earnings growth forecast to be at least 15%. We'll then filter our findings through the collective investing wisdom of the 180,000 members in our Motley Fool CAPS community.
Here are some of the stocks this simple screen found:
EPS Act. vs. Est.
Avg. Analyst 5-Yr EPS Est.
CAPS Rating (out of 5)
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.
It's all Greek to me
For those old enough to remember, Berlitz was the name synonymous with learning a new language, but Rosetta Stone has since replaced it by becoming one of the most publicly visible companies to teach you how. With its ubiquitous commercials and kiosks at malls hawking its CDs, you'd think the company was going like gangbusters, but it has suffered from serial managerial lapses, and the stock languishes more than 50% below its highs.
So what's in store for the future? Although it anticipated losing a big contract with the U.S. Army, which hurt bookings last quarter, it saw greater sales to educational institutions. Getting its products into the K-12 set could be a lucrative future for it, but it reminds me of SAT prep specialist Princeton Review, which also thought getting its product into classes was a growth lever but ultimately failed miserably. Kaplan, the similarly situated division of Washington Post
Foreign-language teachers are a tough commodity to come by these days, and Rosetta's programs could open up many more language opportunities to students. Although 90% of CAPS members rating the language leader think it will outperform the market, NJ7 believes it might be too much of a "want" rather than a "need" to expand to a wide enough audience.
Rosetta Stone is a very tempting stock for me, I almost became a shareholder. But I believe that their product is simply too much of a luxury good to fulfill high expectations. However, I do believe that with their superior offerings, they will streamline and adapt and become profitable eventually. Management must stabilize though.
In high relief
Recently, 3D Systems
Stratasys, the other big name in bas relief printing, is taking the dual track of focusing on selling to the commercial market, with professional machines selling upward of $1 million apiece, but also selling its technology to HP for it to put its nameplate on a consumer model. I'd expect the printer giant to also breach the $1,000 mark soon, at which time Stratasys will see even greater demand. Last quarter the company reported a 31% increase in revenues that generated an 84% jump in profits, despite shipping 5% fewer units. It achieved that growth because it sold more of its higher-priced Fortus lineup and saw revenues for them double.
CAPS member TMFBiggles says perhaps the biggest threat to Stratasys and 3D Systems is a 3-D printer that can print copies of itself.
Interestingly enough, after I posted this I stumbled across a 3-D printer that's designed specifically to print copies of itself. Open-source and everything. I'm still keeping my upthumb, because those machines are just for hobbyists, but it could be a threat down the line.
Add Stratasys to the Fool's portfolio tracker and tell us in the comments section below if you think it will be able to copy its growth trajectory in the future.
Foolish final thoughts
These companies may have the odds stacked against them, but the Motley Fool has identified two stocks that are also facing difficult times yet still grow revenues hand over fist. The report is free, but it's only available for a short time, so ask for your copy today and find out the two cash kings that are changing the face of their industry.
Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Rosetta Stone and 3D Systems. Motley Fool newsletter services have recommended buying shares of 3D Systems, Rosetta Stone, and Stratasys. 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.