5 Top Microcap Stocks

Hey there, Fools. We're back again to help you identify some of the most attractive micro-cap stocks worthy of your investment dollars. Just as a reminder, we do this because:

1. Underfollowed micro-cap companies offer great returns -- and sometimes even the best returns.
2. Wall Street is covering fewer stocks than ever before, making now a great time to start looking for tiny treasures.
3. Micro-cap stocks can burn if you don't do your homework, so we try to shed more light on the asset class for you.

Microscopic surgery
This column uses our Motley Fool CAPS community intelligence database to turn up promising stocks. The system asks amateur and professional investors alike to rate stocks either "outperform" or "underperform." In turn, each investor is rated, as is each stock.

The end result is that while only huge companies like Cisco Systems (NYSE:CSCO) have more than 15 or 20 analysts following them, CAPS harnesses the ideas of thousands to get at the long tail of the stock market with the same depth of coverage.

Drum roll, please ...
So, without further ado, here are five five-star CAPS stocks -- with market caps between $100 million and $200 million -- that three or fewer professional analysts are covering.

As always, don't view these stocks as hearty formal recommendations, but rather as appetizing starters for further analysis. Agreed?

Now that we have that settled, Neogen and TGC Industries might just be two small wonders worthy of your Foolish due diligence.

Safety in a small package
Once again, our CAPS database manages to stick a five-star rating on a little-known stock growing at an impressive clip. Neogen, a leading provider of food and animal safety products, has seen its revenue increase in 59 of the last 64 quarters, while the company has posted profits for 55 quarters in a row. That's part of the reason it's regularly named by Forbes magazine as one of the 200 Best Small Companies in America.

Through its food safety and animal safety divisions, Neogen develops diagnostic test kits to detect all sorts of harmful things like foodborne bacteria, food allergens, and mycotoxins. As fellow Fool Anders Bylund notes, Neogen owns a solid patent-protected portfolio, making competition virtually nonexistent. 

In the latest quarter, Neogen posted a 26% increase in net income on 21% revenue growth -- and these CAPS players detect similar bacteria-free growth in the future:

• SomeKindaFool: "This is one of those small companies with lots of room to grow. Food safety and animal health testing are their core businesses, both of which have a great deal of potential upside these days. Like most small companies, the stock price has not been steady. It has had its ups and downs, but if you plan to hold for a couple years or more, it should provide good price appreciation."
• empirefool: "Strong management in an undeservedly beaten down sector. Although the company is considered a bio-tech they're involved in the very boring business of animal feed testing. The Company has a sound acquisition strategy and consistent ROIC. Unfound by analysts."

The surveyor says
TGC Industries, a Plano, Texas-based oil and gas company, is another stock in the long tail that piques the interest of our CAPS players. TGC, which provides seismic data surveys for exploration companies, has been feeling the ill effects of a weakening oil market. Despite growing income 31% and more than doubling revenue in 2006, the stock is down nearly 50% from its 52-week highs.

CEO Wayne Whitener says the company is currently being hampered by harsh weather, but expects 2007 to be a great year nonetheless. Naturally, these rosy predictions should be taken with a Foolish grain of salt. However, TGC's latest investment in an additional 4,000 channels of seismic equipment might indicate that demand at the company remains strong and intact.

Either way, TGC's stock -- which trades at an EV/EBITDA multiple of 5.5 -- can hardly be called an expensive bet. Last December, I even called it pretty frugal. Here's a pair of CAPS surveyors who also expect returns of seismic proportions:

• Falchi: "If you believe the story about higher costs due to weather (and not something else), and better field crew productivity coming, then we're still looking at a strong grower with future margin improvements. I believe them for now."
• longshort87: "Fundamentally, TGE looks pretty damn good now (a forward P/E down under 10, strong growth momentum, solid balance sheet with nice cash balance, low debt and good cash flow.) ... This stock has mediocre technicals, and is thus temporarily out of favor with market. Smells like undervalued growth to me."

Are we on the same micro-wavelength?
But, of course, the real question is whether you believe these companies are real micro-marvels or small shrimps waiting to be squished. Log on to CAPS and let us know how you feel.

It's absolutely free and, within seconds, you'll have access to thousands of potential stock ideas. Join now -- more teeny-tiny treasures await their discovery.

For more CAPS coverage:

• 5 Stocks Raising Guidance
• Shrink! The Latest Buyback Announcements
• 5 More Top Growth Stocks

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is never too small to be seen.