This Month's Foolish 8 Stocks

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This article is part of ourRising Star Portfolios series.

I'll be gathering more small- and mid-cap candidates for my Rising Star "multivitamin" portfolio over the next few days via 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
This month, 11 companies passed the screen:

AeroVironment (NAS: AVAV)

$672

Aerospace and Defense

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Altisource Portfolio Solutions (NAS: ASPS)

 1,184

Real Estate Management and Development

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Bank of the Ozarks

$945

Commercial Banks

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CVD Equipment

$88

Semiconductors and Semiconductor Equipment

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Epoch Investment Partners (NAS: EPHC)

$562

Capital Markets

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Gulfport Energy (NAS: GPOR)

$1,904

Oil, Gas, and Consumable Fuels

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MercadoLibre (NAS: MELI)

$4,177

Internet Software and Services

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Nanometrics (NAS: NANO)

$411

Semiconductors and Semiconductor Equipment

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SolarWinds

$2,405

Software

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Transcend Services

$283

Health Care Technology

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Twin Disc (NAS: TWIN)

$454

Machinery

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Source: S&P Capital IQ.

New stocks on the list this month are Bank of the Ozarks, Epoch Investment Partners, Gulfport Energy, Nanometrics, and Transcend Services. Dropping off the list from last month are Hi Tech Pharmacal and IPG Photonics.

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

AeroVironment

16%

21.4

18.7

14%

11%

Altisource Portfolio Solutions

26%

13.6

22.5

45%

16%

Bank of the Ozarks

16%

14.7

NM

28%

52%

CVD Equipment

24%

23.1

12.2

14%

11%

Epoch Investment Partners

32%

23.0

24.0

36%

30%

Gulfport Energy

17%

14.6

NM

27%

46%

MercadoLibre

12%

43.3

66.9

39%

26%

Nanometrics

19%

27.6

21.0

32%

24%

SolarWinds

22%

29.4

26.2

32%

33%

Transcend Services

12%

17.6

40.1

18%

11%

Twin Disc

25%

14.7

NM

21%

8%

Source: S&P Capital IQ. 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 or negligible 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.

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. Motley Fool newsletter services have recommended buying shares of AeroVironment, IPG Photonics, and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

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