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:

  • Underfollowed micro-cap companies offer great returns -- and sometimes even the best returns.
  • Wall Street is covering fewer stocks than ever before, making now a great time to start looking for tiny treasures.
  • Micro-cap stocks can burn you 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 Coca-Cola 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.

Drumroll, please ...
So without further ado, here are five CAPS stocks sporting four or five stars (out of five), that have market caps between $100 million and $200 million, and that three or fewer professional analysts are covering.


Market Cap (in millions)

Number of CAPS Ratings


Current Analyst Recommendation

Northrim Bancorp (NASDAQ:NRIM)





Ark Restaurants (NASDAQ:ARKR)










White Electronics Designs (NASDAQ:WEDC)




Two Buy,

One Hold

Portec Rail Products (NASDAQ:PRPX)




Strong Buy

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?

Now that we have that settled, Ark Restaurants and Portec Rail Products might just be a pair of small wonders worthy of your Foolish due diligence.

Ark afloat?
One of master investor Peter Lynch's favorite plays was to buy into blossoming regional-to-international retail concepts. I don't know whether Ark Restaurants has got what it takes to make it on the global stage, but recent success in major U.S. cities may indicate at least a national growth story within our Foolish midst.

For the uninitiated, Ark Restaurants operates 24 "upper-scale" restaurants and 25 fast-food concepts located primarily in New York City, D.C., Las Vegas, and Atlantic City. Over the last few years, growth has generally been uninspiring at Ark, but year-over-year same-store sales growth -- in each of its major centers -- is surely a positive sign.

Currently, Ark has about $11 million in cash, virtually no debt, and trades at an EV/EBITDA of just 8.4. With Ark continuing to make good on its dividend covenant (a dividend, by the way, which now yields 4.8%), the stock's risk/reward profile is intriguing.

CAPS All-Star ikkyu2 digs in:

I like the restaurants. They're geared toward people with a lot of discretionary income. Hard to grow that model -- a lot of different things have to be in place. It's not cookie-cutter the way a McDonald's is, but it's less susceptible to the downside of the business cycle. They did away with all their debt 3 years ago; right now the forward dividend yield is about 5%, which is attractive just on its own.

Riding the rail
Portec Rail Products is another stock in the long tail that piques the interest of our CAPS players. Ever since Warren Buffett decided to get on the train himself -- with purchases of Burlington Northern (NYSE:BNI), Union Pacific, and Norfolk Southern -- the tiny manufacturer of rail products (joints, anchors, spikes, etc.) has been a tiny-capped favorite. Upon further inspection of Portec's numbers, the stock seems pretty attractive in its own right.

Over the last three years, Portec has grown revenues, income, and operating cash flow at a 20%, 15%, and 100% clip, respectively. Additionally, Portec has paid out a $0.05 per-share quarterly dividend since June 2003. Not too shabby. With management expanding into booming parts of the world through numerous acquisitions, Portec's future growth is something worth investigating.

With a forward P/E of 15 and a dividend yield of 2.1%, it might even be worth it.    

CAPS player RandomGuy123 gets on board:

PRPX seem to be making a lot of intelligent acquisitions and have what appears to be some promising technologies in the works, including an automatic rail lubrication system and rail stress sensor. ... Their operations are centered in the U.S. and Canada, but they recently stated their intentions of diversifying into Europe and Asia on their 2006 10-K. ... Railroad freight demand is expected to grow in the long term, and PRPX is a good play on that growth.

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 stock ideas. Join now -- more teeny tiny treasures await their discovery.