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 opportunities for growth because they're mostly ignored by the big investors.
Below we screen for stocks under $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:
EPS Act. vs. Est.
Avg. Analyst 5-Year EPS Est.
Snyder's-Lance (NAS: LNCE)
Sourcefire (NAS: FIRE)
Titan International (NYS: TWI)
Source: Yahoo.com 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.
An alternative opportunity
During this recession, private label food brands (there's an oxymoron for you) have been a saving grace for retailers as well as consumers. Grocery chains like Kroger (NYS: KR) have feasted on private label goods to draw in customers and raise profits. Wal-Mart's Great Value brand and Target's (NYS: TGT) Archway have been equally important to their business.
Ralcorp, one of the premier private label product makers, has almost tripled its profits over the last five years. That hasn't gone unnoticed; even though Ralcorp adopted a poison pill defense and announced its intention to spin off its Post Foods business, ConAgra is still pressing forward with takeover efforts.
Snyder's-Lance, despite deriving 42% of its revenues from private label goods (one of which is Target's Archway), hasn't fared quite as well. But that might have just as much to do with last year's merger between Snyder's and Lance as with anything inherently wrong in the business, though it may have difficulty maintaining its tasty dividend at the level it's been at.
The integration won't be completed until the middle of next year, but even then, CAPS member greenbreen doesn't see why that should help:
I do not see the merger synergies (although it def brings value) salvaging the short term. I look for this to trade closer to book despite the divi by the end of '11. From these 19's, I am looking for 14-15 range (-20%) unless earnings exceeds managements expected 5%.
Add the snack maker to your watchlist then head over to the Snyder's-Lance CAPS page and see if there's anything worth noshing on there.
Getting a charge out of it
It has to be a source of disappointment for Sourcefire investors that as Check Point Software soars higher on better earnings and higher revenue forecasts for the third quarter, their own stock is treated like a pariah, as if it were some hacker. Shares are off almost 20% for the month, but maybe it's just because Check Point is dominating the industry, because Fortinet (NAS: FTNT) is down sharply, too: Its stock is 25% lower.
Considering the spate of security breaches we've seen, you'd expect all the boats in the space to float higher, but that's obviously not the case. That could explain why, despite the lower valuation, 91% of the CAPS All-Star members rating Sourcefire think it can still go on to outperform the broad market averages.
Add Sourcefire to the Fool's free portfolio tracker to see whether it can secure its place among leading security companies.
Taking giant steps
Titan International makes tires. Not like Goodyear, with its dainty retreads for your little runabout, but big honkin' tires used for agricultural, construction, and industrial purposes. It's doubling down on its efforts, too, by forming a division that specifically caters to the mining sector, focusing in particular on the oil sands region of Canada because of its reliance upon heavy machinery. Once established, it will expand the business globally.
Catepillar and Deere are growing at a significant pace around the world. TWI manufactures both large earth moving and farm tires. TWI's growth rate should follow the growth of Cat and De.
Let us know on the Titan International CAPS page how big you think the business can grow.
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!
At the time thisarticle was published The Motley Fool owns shares of Wal-Mart. Motley Fool newsletter services have recommended buying shares of Wal-Mart and Check Point Software. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart. 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.Fool contributorRich Dupreydoes not have a financial interest in any of the stocks mentioned in this article. You can see his holdings here.
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