5 Top Stocks You Don't Know About

Wall Street is covering fewer companies than ever before. As my colleague Brian Richards and I wrote here, fewer than 6,000 of the more than 10,000 publicly traded companies are covered by three or more analysts. That means that nearly 40% of the stocks on the market today -- 90% of them small caps -- can rightly be called underfollowed.

But this isn't a bad thing. In fact, it creates opportunity for individual investors like you and me. When you play where Wall Street doesn't, you're more likely to find a company that is undervalued relative to its prospects. See, the efficient market doesn't work when there aren't hundreds of opinions and thousands of shares changing hands each day.

A new way to know small caps
Don't get me wrong: This doesn't mean that small-cap investing is a path to easy money. Because the market isn't always efficient in this area, and because there is less information available about these companies, the downside here can be as harrowing as the upside is alluring. In-depth research is an absolute necessity if you want to be a successful small-cap investor -- and that's one of the reasons why we offer our Motley Fool Hidden Gems research service.

But I'm not here today to talk about Hidden Gems. I'm here to talk about a new and free database that has the potential to revolutionize small-cap investing. (My apologies in advance, by the way, if you find this self-promotional. Rest assured that the names of those five top stocks are coming.) That database is called Motley Fool CAPS, and while CAPS is still in beta-testing, it's already spitting out more information on small companies than has ever been available before.

So what are CAPS' favorite underfollowed small companies? Before I get to that, let me explain a little bit about how the system works.

The method to the madness
As a CAPS investor, all you're asked to do is to offer your opinion on whether a stock will outperform or underperform the S&P 500 over the time frame you specify. In turn, CAPS will rate you -- yes, you -- based on accuracy and total gains. In other words, you can now measure your investing acumen against thousands of others.

But that's not new. Here's where CAPS gets revolutionary.

After you rate a stock, and your neighbor rates the same stock, and both of your grandmothers rate that stock, the system then compiles your rankings with those of the rest of the community, and with the picks of any professional analysts we happen to be tracking in the system (Lehman Brothers, Piper Jaffray, and Jim Cramer among them). What happens next? CAPS rates the stock, of course. And with thousands of data points being entered daily, you can see why this system can produce more information on underfollowed stocks than ever before.

And now for those top stocks.
Without further ado, here are the names of the top five stocks in CAPS that are covered by three or fewer analysts. For fun's sake, I've also included the number of CAPS investors covering, the number of analysts covering, and the analyst sentiment.

You can see from the table the magnitude of the informational advantage that CAPS can offer when it comes to small companies -- an advantage that will continue to grow as more investors participate in the system. Even better, this doesn't happen at the expense of larger companies. Heavily followed companies such as eBay (NASDAQ:EBAY) and General Electric (NYSE:GE), which are each covered by 20 analysts, are also heavily covered in CAPS, with 367 and 418 investors weighing in, respectively.

The Foolish bottom line
The key to making big money in small companies is information. CAPS can help you learn more about these stocks than ever before. If that sounds like an interesting proposition, click here to join CAPS and add your rankings for free. Everyone's intelligence helps makes the system smarter.

Tim Hanson does not own shares of any company in this article, although he has rated both eBay and TGC Industries "outperform" in CAPS. eBay is a Motley Fool Stock Advisor pick. No Fool is too cool for disclosure.