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-Yr EPS Est.
CAPS Rating (out of 5)
Kodiak Oil & Gas (NYS: KOG)
OpenTable (NAS: OPEN)
Questcor Pharmaceuticals (NAS: QCOR)
Source: Yahoo.com and Motley Fool CAPS. Taser reported EPS of $0.04 compared to $0.00 estimates.
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
The bankruptcy filing of President Obama's pet "green" company Solyndra, a company that was supposed to lead the way into the future with a $535 million helping hand from taxpayers in the form of a loan guarantee, suggests so-called green jobs won't be a significant force in the future -- let alone provide enough energy to wean us off fossil fuels. That's why some smart analysts suggest you should add energy stocks -- specifically traditional oil and gas plays -- as a core holding in your portfolio.
Although BP (NYS: BP) or Chesapeake Energy (NYS: CHK) might head any investor's short list of companies to consider, smaller plays like Kodiak Oil & Gas or EOG Resources (NYS: EOG) should make the cut too. And for those looking for perhaps a quick route to realizing the value inherent in its shares though a possible acquisition, Kodiak is probably a top contender.
The exploration and production specialist has rich assets in the Bakken fields of North Dakota and Montana, which, as the Fool's Dan Dzombak points out, ought to make it particularly attractive to a larger company. With a unique ability to increase output even as it is already keeping a busy production schedule, Kodiak is a prime buyout candidate.
Highly rated CAPS All-Star Keekers44 agrees Kodiak looks like an attractive takeover target, and with 95% of the CAPS community rating the E&P star to outperform the broad market averages, it's apparent they think that even if it remains a stand-alone company it will do well for itself.
Add Kodiak to your watchlist, then head over to the Kodiak Oil & Gas CAPS page and drill down on further analysis of this unique energy play.
A time for feasting
Not surprisingly, restaurant reservation specialist OpenTable is feeling the impact of a softer economy that's hitting the restaurants themselves.
According to the National Restaurant Association, restaurant operators reported softer comps and traffic levels and felt more pessimistic about the immediate future. Its Restaurant Performance Index slipped below 100 in July, indicating an industry edging into contraction and marking its lowest level in almost a year. OpenTable's stock has been cut in half from its 52-week high as expansion costs and high marketing expenses take a toll, not to mention increased competition from IAC/Interactive's Urbanspoon.
OpenTable's expansion includes buying smaller rivals, and the analysts at Trefis indicate that the reservation system with more than 15,500 restaurants in North America now dominates over half the market, giving it some serious critical mass.
OPEN ... is priced [as of early August] at a forward P/E of about 36 for a company that is expected to grow earnings by over 38%. In addition their international growth is phenomenal given every category internationally grew by over 200% this last quarter. A true rule breaker.
Add OpenTable to the Fool's free portfolio tracker to see whether it still has a seat at the table.
Taking giant steps
Focusing on central nervous system and inflammatory diseases, Questcor Pharmaceuticals has seen its shares double this year as its primary drug Acthar continues to gain traction. Despite fears early on that changes to Medicaid and Medicare reimbursement policies would impede prescription growth, second-quarter paid prescriptions for MS actually jumped 147% from the year-ago period, with Acthar prescriptions advancing 45% for all indications.
Although it faces competition from Solu-Medrol, an MS drug produced by Pfizer (NYS: PFE) , and Lundbeck's Sabril for infantile spasms, it hasn't lost any of its momentum. CAPS members think it can beat the market indexes, too, so add the pharmaceutical to the Fool's free portfolio tracker and give us a dose of your thinking on its prospects at the Questcor Pharmaceuticals CAPS page.
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 Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer, Chesapeake Energy, and OpenTable. 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.
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