3 Small-Cap Stocks on Fire

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This article is part of ourRising Star Portfolios series.

Most investors don't keep tabs on their companies' fundamental value. That's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home run stocks that provide the market's best returns.

We can help you keep tabs on your companies with MyWatchlist.com, our free, personalized stock tracking service. Here are three stocks from my watchlist that have been hot lately.

1. 8x8 (NAS: EGHT)
8x8 caught my eye after it had risen almost 20% in the past month. The company provides Internet-based phone services and is getting out of the consumer segment to focus exclusively on business sales. The company is also expanding its offerings into video communications, taking on giant Cisco Systems (NAS: CSCO) in the telepresence and mobile video communications markets, and partnering with Level 3 Communications (NAS: LVLT) on government accounts. Fundamentally, 8x8 has been doing well; the company grew its customer base by 18% over the past year while lowering its customer acquisition costs and keeping stable its average revenue per customer. It's definitely a stock worth following. Click here to add 8x8 to your watchlist.

2. ATP Oil & Gas (NAS: ATPG)
ATP Oil & Gas caught my eye long ago, but recently more so since it has jumped more than 40% in the past month. The company's story is fairly well known. In 2010, ATP Oil & Gas was expected to drill four wells that would transform the company into a cash flow machine. ATP Oil & Gas finished one well early in the year, but then the disaster in the Gulf of Mexico with Transocean's (NYS: RIG) Deepwater Horizon happened, and all drilling ceased. Drilling has since resumed, but the stock has been hammered over the past six months over concerns about the company's debt level. The tide turned recently, however, with news of new production from a successful deepwater well. I own long-term call options on ATP Oil & Gas in my Rising Star portfolio. Click here to read my initial pitch for ATP Oil and Gas and here to add the stock to your watchlist.

3. Great Panther Silver (ASE: GPL)
Great Panther Silver caught my eye after rallying 12% over the past month compared with an 8% rise for Central Fund of Canada (ASE: CEF) , a proxy for gold and silver bullion. Great Panther Silver's shares plummeted last month after a scathing article was posted by a short-seller. Motley Fool metals expert Christopher Barker responded, refuted the arguments, and gave his own case for the stock, resulting in the short-seller's article getting retracted. Chris likes the company's "steady and profitable production growth paired with an exciting long-term fundamental outlook. After raising $24 million in a well-timed bought deal financing, the small-cap miner commands a $37.7 million cash position (and no long-term debt) with which to pursue its strategic goal to acquire a third mining operation." Click here to read his pitch for the stock or here to add Great Panther Silver to your watchlist.

My Foolish bottom line
If you're looking for more ideas for strong outperformers in the year ahead, The Motley Fool has created a new free report called "The Hottest IPO of 2011." In it, we reveal the little company set to profit from a big brands expansion into Latin America. Get instant access by clicking here -- it's free.

At the time this article was published Dan Dzombak can be found on his twitter account:@DanDzombak.He owns shares of Cisco Systems and ATP Oil & Gas, but he holds no other position in any company mentioned.The Motley Fool owns shares of Transocean. The Fool owns shares of and has created a bull call spread position on Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Cisco Systems. 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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