5 Top Micro-Cap 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 this 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 Dell (NASDAQ:DELL) 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 CAPS stocks sporting four or five stars, 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, National Research and GameTech International might just be two small wonders worthy of your Foolish due diligence.

Quality research
One of the great things about CAPS is the transparency it has brought to the once-opaque issue of financial analyst performance. That's why it should be fairly easy for us Fools to understand (and appreciate) National Research -- a company that tracks, measures, and analyzes the operating performance of professional health-care organizations.

National Research is a leader in health-care performance measurement, so naturally, it stands to benefit from our aging population. For the last five years, earnings have grown at an average rate of 29%, while the forward P/E stands at a reasonable 17. National also pays out modest dividends which, at current prices, represents a 2.20% yield -- pretty rare for such a small company.

Of course, most of those dividends go straight to founder and CEO Michael D. Hays, who owns a whopping 70% of National. Still, it may not be a bad idea for Fools to align themselves with someone who has so much interest in the company.  

Our very own TMFMmbop chimes in with some thoughts on National Research, along with a similar micro cap, Health Grades (NASDAQ:HGRD):

As people (and politicians) spend more on health care, they will want to know what they're paying for. Thus, NRCI and HGRD will be paid -- as kinds of tollkeepers -- to keep tabs on everyone. This is a wide market opportunity, and these are tiny companies. Put that together, and we have a recipe for market-beating returns.

And Bingo was his name-o
GameTech International, a Nevada-based maker of electronic bingo systems, is another stock in the long tail that piques the interest of our CAPS players. The company primarily targets the thousands of bingo halls in North America, so, like National Research, I'd say this is largely another play on the aging demographic.

As a grandson who spends a lot (too much) of his time picking up and dropping off two fanatics at the local bingo hall, I can attest to just how crowded these places can get. Over the last two years, the stock has risen more than 200%, driven by substantial growth in operating income.

Throw in a PEG of 0.84, EV/EBITDA of 7.3, and the fact that chairman Richard Fedor owns nearly a quarter of the shares outstanding, and you've got a bingo card with some potential. On top of all that, two of Wall Street's best -- Roth Capital and Merriman Curhan Ford -- currently have outperform calls on GameTech.

ToddTracy, yet another CAPS All-Star, calls out a couple of winning numbers for us:

Solid balance sheet, strong EPS performance over last 2 years. New developments in Nevada have great potential to add volume quickly. It seems this company has a lot more room to run in the next 2-3 years.

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 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.

Make seven picks on CAPS by April 24 and we'll send you a free copy of The Motley Fool Five-Star Report. Inside you'll discover how to use CAPS as a research tool, and you'll receive a recommended five-star CAPS pick poised to beat the market for the next decade or more -- one you can easily translate into profits for your real-world portfolio. Click here to get started now!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Dell is both a Motley Fool Stock Advisor and Inside Value choice. The Fool's disclosure policy is never too small to be seen.