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. That's why 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: While only huge companies like Wal-Mart (NYSE:WMT) have more than 15 or 20 analysts following them, CAPS harnesses the ideas of thousands of players to cover the long tail of the stock market with similar depth.

Drum roll, please...
Here are five CAPS stocks sporting four or five stars, with market caps between $100 million and $200 million, covered by three or fewer professional analysts.


Market Cap

Number of CAPS Ratings


Current Analyst Recommendation


$178 million



One strong buy, one buy


$156 million



Strong buy

Key Technology (NASDAQ:KTEC)

$161 million




Osteotech (NASDAQ:OSTE)

$123 million



Strong buy

Utah Medical Products (NASDAQ:UTMD)

$124 million




Data from Yahoo! Finance and Motley Fool CAPS.

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

With that settled, Osteotech and Utah Medical Products might just be worthy of your Foolish due diligence.

Bone collector
On my daily strolls through CAPS-land, I'm constantly running into new ideas about how to best capitalize on the country's baby boomers. The latest idea I've come across -- and one of the more intriguing ones -- is Osteotech, a processor of bone and connective tissues for transplant use.

Osteotech still has a relatively small following in CAPS, but according to the pitches Fools have written so far, it's in a perfect position to benefit from the increasing number of bone surgeries as the country ages. Despite its micro-cap size, Osteotech is the largest processor of allograft bone tissue, having yielded more than 2.3 million grafts for its clients.

To be sure, Osteotech is certainly one of the more speculative ways to play the boomer boom. Its earnings have been negative in three of the last five years. But with specific products like Xpanse (bone insert) and Plexur P (bone healing) gaining positive momentum, all while having a potent pipeline to boot, Osteotech has more than enough upside to keep on the watch list.

CAPS player didIpickthat personally hand-grafted this pitch:

Processing human bones (from donors) is big business. With more and more back surgeries being done, the use of properly prepared bone grafts will also increase. Remember: the Baby Boomers are getting older minute by minute. Companies that provide implanted bone, or bone-matrix materials, should do well over the next 10 years.

Utah Medical Products is another stock in the long tail that piques the interest of our CAPS players. The manufacturer of specialty medical devices for women and babies still doesn't have a single bearish CAPS detractor (out of 80 total calls), so I'd say it's a small-cap opportunity worth looking into.

Specifically, our CAPS community is drawn to Utah Medical's returns on equity (consistently clocking in greater than 20%), free cash flow production, and steadily growing dividend payments. CAPS investors also like UTMD's solid balance sheet, which contains more than $20 million in cash and just $4 million in total debt.

The big drawback to UTMD has been its relatively flat revenue and EPS growth over the last five years. Nonetheless, the stock has managed to deliver compounded returns of 17% during that time period. With an EV/EBITDA of 9.1, there might still be room for solid gains going forward.

CAPS player MArgersinger chimes in:

The company has been a steady grower, quietly expanding its business, acquiring other small companies that complement its growing line of products, while producing steady levels of cash and paying nice dividends. The management is currently seeking to use the company's large amount of cash to acquire other medical products companies and expand its operations abroad, particularly in Europe.

Are we on the same micro-wavelength?
But, of course, the real question is whether you believe these companies are real micro-marvels, or just small shrimps waiting to get 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.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Wal-Mart is a IMotley Fool Inside Value newsletter recommendation. The Fool's disclosure policy is never too small to be seen.