You don't need the investing acumen of Warren Buffett or the riches of a trust fund baby to achieve financial success.
Small sums of money invested monthly in undervalued small-cap stocks offer hope for your greatest returns. They offer the best growth opportunities for growth because they're mostly ignored by the big investors.
Below we screen for stocks with less than $3 billion in market cap, offering earnings surprises of 15% or more in the previous quarter, with long-term earnings growth forecast to be at least 15%. We'll then filter our findings through the collective investing wisdom of the 180,000 members in our Motley Fool CAPS community.
Here are some of the stocks this simple screen found:
|
Company |
Market Cap |
EPS Actual vs. Estimate |
Avg. Analyst 5-Year EPS Estimate |
CAPS Rating |
|---|---|---|---|---|
| SodaStream International (Nasdaq: SODA) | $631 million | 68% | 33% | ** |
| THQ (Nasdaq: THQI) | $113 million | 17% | 22% | ** |
| Zoltek (Nasdaq: ZOLT) | $305 million | 800% | 15% | *** |
Source: Yahoo! and Motley Fool CAPS.
Of course, this is not a list of stocks to buy -- just a starting point for more research. We need to look more closely at these companies to see whether analysts' faith in them is well-founded.
A link to the future
There are a lot of reasons we're supposed to believe investors in SodaStream International will eventually be popping corks: It's healthier, it's greener, and its DIY soda machines are part of a growing trend. I remain unconvinced this is anything more than a bubble, the flavor of the month, if you will.
Earnings results would seem to belie that view, though. Sales rose 39% last quarter, allowing it to raise guidance for the rest of the year. With a strong retail presence in some 7,000 locations, including major retailers like Bed Bath & Beyond (Nasdaq: BBBY), Target (NYSE: TGT), and even office supplies retailer Staples.
Yet SodaStream is no Green Mountain Coffee Roasters (Nasdaq: GMCR). It doesn't have a patented, revenue-generating, high-margin refill like the K-cup (you can use third-party carbonation canisters); there is no real cost savings like there is with a premium cup of coffee (a can of soda is already pretty cheap). So you're left with saving the environment and perhaps health concerns, two areas that seem unlikely for people to start viewing SodaStream as the means of changing their lives.
Back in March, I marked the stock to underperform the S&P 500 before it had its big run-up and subsequent bubble burst. I don't see it doing anything that will change that outlook. So add SodaStream to your watchlist then fire away in the comments section below or on the SodaStream International CAPS page.
Smart thinking
The video game industry had been a steady performer throughout much of the recession, but as it wore on and ground down consumers, even game players stopped spending their money on new titles and systems. It seems we're coming out of that dark period and now we have the best companies emerging to the fore.
Activision Blizzard (Nasdaq: ATVI) is breaking industry records with its new Call of Duty game, but it was raising estimates ahead of its release, and while THQ had wider losses in its third quarter, they were much better than what analysts anticipated and it's also looking forward to the all-important Christmas selling season, led by its Saints Row title, for which it expects to sell 3 million copies.
Analysts are a little circumspect about it selling 3 million copies of games that go with its uDraw GameTablet, and I have to admit after its introduction amid much fanfare, there seems limited utility with the hardware.
CAPS member hurricanehedge says if THQ doesn't return to form, investors can probably expect it to get bought out.
With the new Saints Row coming out, i think rockstar better stop worrying about cowboys and zombies and start worrying about competitors taking over their GTA market. THQ will begin to produce hit games like they did back with Tony Hawk Pro Skater. If they dont, they will get bought out by [Activision], [Electronic Arts], or my crystal ball tells me that Zynga could try and move into the actual video game indusrty, and try to do so cheaply
Add THQ to your watchlist and let us know in the comments section below whether you think the stock belongs in a balanced portfolio.
Rising fortunes
The problem with wind power is that it can only be located in certain wind-swept areas. Transmitting it to where it can actually be used makes it cost a lot, according to some calculations, making it no more cost effective than coal. Transmission lines, inverters, and back-up generators for when the wind's not blowing ... it all adds up. And that's just land-based wind power; offshore wind farms are almost as expensive as solar, the most expensive form of energy. The sun and wind apparently aren't "free" as some would have you believe.
That hasn't stopped Zoltek from profiting. Despite its largest customer Vestas cutting orders 40% recently, the carbon fiber maker -- the key ingredient for wind turbines -- reported revenue jumping 38% year over year and reversing year-ago losses. Yet Hexcel, a more consistently profitable carbon-fiber manufacturer, might be a better bet.
With 95% of CAPS members rating Zoltek to loft higher, add the stock to your watchlist to see whether it can withstand any blowback.
Foolish final thoughts
Stock investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think. You just have to commit to starting now, and do so regularly. Now's the time to begin!
