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.
CAPS Rating (out of 5)
RealD (NYS: RLD)
SodaStream International (NAS: SODA)
Youku.com (NYS: YOKU)
Source: Yahoo! Finance 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
Despite the extent of our viewing options consisting of Glee 3-D or the latest Final Destination iteration (weren't we supposed to have the "final" version a few sequels ago?), 3-D projection technology is still growing worldwide.
According to IHS Screen Digest Cinema Intelligence, worldwide 3-D box office revenue doubled to $6.1 billion in 2010, reflecting the explosion of screens offering the technology (if not the quality movies to exploit it). But the higher prices that come with it may be causing a backlash as viewers balk at paying a premium for low-quality fare.
IMAX (NYS: IMAX) was treated like some B-movie starlet when its latest quarter's results came in well under analyst expectations, though its technology merely enhances the viewing experience regardless of whether the movie is 2-D or 3-D. Dolby Labs, which estimates it owns 20% of the 3-D market with 8,300 screens worldwide, has been feeling margin pressure as it lowers prices to get the technology out there.
RealD experienced some market backlash of its own after revenue came up well short of analyst expectations this quarter as moviegoers reused their 3-D glasses instead of buying new ones. Profits still exceeded forecasts, but RealD is cutting back on its purchases of glasses regardless. Still, with 1,000 new screens being installed at AMC theaters, the 3-D leader will build on its base of 17,500 screens worldwide.
CAPS member chopchop0 isn't willing to pay up for a lower-quality product, and the broader community is concerned many moviegoers feel the same way with fully one-third of those rating RealD believing it will underperform the market. Add the 3-D specialist to your watchlist to see if there's anything worth seeing here.
Some froth in the market
Home beverage maker SodaStream International saw unit sales and consumables in the Americas triple while sales of flavor units nearly doubled as it placed more of its soda makers in mass merchandiser outlets such as Bed Bath & Beyond (NAS: BBBY) and Best Buy.
Although I'm not sold on the company as an investment, I did contemplate buying one of its machines the other day to see whether it was as cost-effective as its proponents say. However, my wife stopped me because its flavor packets use the sweetener Splenda, a taste she doesn't like. Perhaps she's just used to the aspartame and high-fructose corn syrup used by other beverage makers, but with the company issuing "cautious" guidance for the rest of the year, maybe the pace of adoption is starting to slow.
I was wrong about the Keruig and in the long run, I could be wrong about SodaStream products, but I just don't see the attraction. Looks like a fad to me, and until it gets some decent sales growth, I'm not buying.
Add SodaStream to the Fool's free portfolio tracker to see whether growth can still bubble up.
Taking giant steps
Chinese video streaming site Youku.com still has a ways to go to assuage investors and convince the market it can rise to the level of YouTube, even as that service is banned in the country. Though it narrowed losses in the latest quarter (and beat expectations) as revenue shot higher on greater ad sales, there could be greater competition from the likes of Sina (NAS: SINA) , Baidu (NAS: BIDU) , and soon-to-IPO Tudou Holdings.
Regardless of the threats, Youku says revenue is expected to double year over year next quarter, and the company launched a pay-per-view joint venture with TimeWarner's Home Entertainment Group.
Government censorship and control has given Yoku has a virtual monopoly on 1 billion Chinese customers. Even if that were not so, they've positioned themselves as the go-to company for videos just as Netflix has here in the U.S. Can you tell me the name of any Netflix competitors? Only difference with Yoku is 3 times the potential customers.
Let us know on the Youku.com CAPS page and tell us if you think business can grow as big as it seems.
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 Best Buy. Motley Fool newsletter services have recommended buying shares of Netflix, Sina, Bed Bath & Beyond, IMAX, Best Buy, Baidu, SodaStream International, and Dolby Laboratories. Motley Fool newsletter services have recommended buying puts in Netflix. 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 Dupreyowns shares of Best Buy and Dolby but does not have a financial interest in any of the other stocks mentioned in this article. You can see his holdings here.
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