This Month's Foolish 8 Stocks

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This article is part of ourRising Star Portfolios series.

Over the next couple of days, I'll be gathering more small- and mid-cap candidates for my Rising Star "multivitamin" portfolio using my Foolish 8 and modified Foolish 8 screens. Today I present the Foolish 8, which was developed by Motley Fool co-founder David Gardner to identify profitable, rapid-growth, small-cap stocks. Here are the eight criteria:

  1. Revenues: $500 million or less.
  2. Earnings and sales growth: 25% or greater.
  3. Net profit margin: 7% or greater.
  4. Daily dollar volume: $1 million to $25 million.
  5. Insider holdings: 10% or greater.
  6. Share price: $7 or greater.
  7. Relative strength: 90 or greater.
  8. Operating cash flow: a positive number.

The contenders
Eleven companies passed the screen this month:

Company

Market Cap
(in millions)

Business

Add to Your Watchlist

Cohen & Steers

$1,540

Asset management

Add

CVD Equipment (NAS: CVV)

$105

Electronic equipment

Add

Exlservice Holdings (NAS: EXLS)

$793

Business services

Add

Financial Engines

$1,002

Portfolio management services

Add

Gulfport Energy (NAS: GPOR)

$1,430

Oil and gas

Add

Interactive Intelligence (Nasdaq: ININ )

$572

Business software

Add

IPG Photonics (Nasdaq: IPGP )

$2,716

Networking equipment

Add

Preformed Line Products (NAS: PLPC)

$281

Electrical networking

Add

SolarWinds

$1,816

Business software

Add

Transcend Services (NAS: TRCR)

$268

Medical transcription

Add

Virtusa

$402

IT consulting

Add

Source: Capital IQ, a division of Standard & Poor's.

New stocks on the list this month are Cohen & Steers, CVD Equipment, Exlservice Holdings, Financial Engines, Preformed Line Products, and Transcend Services.

Dropping off the list from last month were 3-D Systems and Acme Packet.

Biggie smalls
Here's a look at some interesting metrics for these small fries:

Company

Insider Ownership

Forward P/E

EV/FCF (TTM)

ROE

Net Margin

Cohen & Steers

59%

36.0

30.6

20%

25%

CVD Equipment

26%

37.5

11.3

9%

9%

Exlservice Holdings

11%

32.3

27.0

13%

11%

Financial Engines

21%

63.0

NM

42%

52%

Gulfport Energy

18%

27.7

NM

29%

44%

Interactive Intelligence

24%

22.4

37.1

18%

9%

IPG Photonics

26%

54.0

NM

27%

23%

Preformed Line Products

47%

11.3

NM

16%

8%

SolarWinds

22%

34.4

28.0

30%

31%

Transcend Services

12%

28.9

23.6

18%

12%

Virtusa

13%

24.1

111.7

9%

8%

Source: Capital IQ, a division of Standard & Poor's. P/E = price-to-earnings ratio; EV = enterprise value; FCF = free cash flow; TTM = trailing 12 months; ROE = return on equity. NM = not meaningful because of negative free cash flow.

If any of these companies look interesting enough for me to research further, I'll delve more into the reasoning behind the negative FCF.

Tomorrow, I'll show you the results of this month's modified Foolish 8 screen and then talk about the companies that interest me from both screens in more depth.

If you're interested in keeping up with any of these companies, add them to your free watchlist by clicking the "add" button in the far-right column of the top table. You can also follow me on Twitter and check out the multivitamin discussion board. Until tomorrow!

This article is part of ourRising Star Portfoliosseries, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks.See all of our Rising Star analysts(and their portfolios).

At the time this article was published Fool analyst Rex Moore reminds you that time always holds the winning hand. He owns no companies mentioned here. The Motley Fool owns shares of IPG Photonics and 3-D Systems.Motley Fool newsletter serviceshave recommended buying shares of Acme Packet, IPG Photonics, and Interactive Intelligence Group. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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