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 the best growth opportunities because the big investors mostly ignore them.
I'm screening for stocks that have a market cap of less than $3 billion and offered earnings surprises of 15% or more in the previous quarter, with long-term earnings growth forecasted 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 Actual vs. Estimated
Average Analyst 5-Year EPS Estimate
CAPS Rating (out of 5)
Datalink (NAS: DTLK)
Smart Balance (NAS: SMBL)
Affymax (NAS: AFFY)
Sources: 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.
A link to the future
Although analysts are expecting eroding IT-industry fundamentals to eat away at demand for products and services from Cisco (NAS: CSCO) , EMC (NYS: EMC) , and Meru Networks, drive data-center specialist Datalink has outpaced analyst expectations for several quarters running.
Datalink's stock came under pressure for no real reason last month but has since regained a lot of the lost ground. Its shares have risen almost 160% during the past year, making it one of its industry's best performers. With earnings scheduled for next week, look for Datalink to confound the analysts again.
Only one of the All-Star CAPS members rating Datalink thinks it won't beat the market, but let us know in the comments section below or on the Datalink CAPS page whether you think investors will connect with this stock. Also add it to your watchlist to be notified of the latest developments.
Consuming trans-fats increases the risk of coronary heart disease by raising levels of so-called "bad" LDL cholesterol while lowering levels of "good" HDL cholesterol. A number of cities across the country have banned the use of trans-fats in restaurants, and food processors such as Kraft and McDonald's (NYS: MCD) have removed the offending fat from their products.
Long riding the wave of healthier dieting has been Smart Balance, the maker of the eponymous butter substitute, which, according to the market researchers at IRI, was the fastest-growing dairy brand from 2004 to 2010. With a patented formula for reversing the effects of trans-fats, it has been taking on industry giants such as Nestle and Kellogg, which it accuses of infringing on its patents. Its shares are up 80% over the past year, and with analysts looking for earnings to more than double this year, Smart Balance could be a smart choice for investors.
CAPS member vaderblue says that considering its performance and the outlook for the future, it's a good bet to be acquired by a larger rival. Add Smart Balance to your watchlist, and let us know in the comments section below whether you think the stock belongs in a balanced portfolio.
Waiting for approval
There's obviously still a lot riding on Affymax's getting its investigational anemia drug peginesatide, formerly known as Hematide, approved, but thus far, the path has been anything but smooth. Last year, a late-stage clinical study showed a higher rate of death and stroke in patients, and investors have been waiting for, first, a filing by the company and now an FDA decision.
Affymax says the drug to treat anemia in patients with chronic kidney failure should get a hearing by the regulatory agency by late March 2012. It can't come soon enough. Its most recent quarterly results were hurt because there were no milestone payments from partner Takeda included this year, though it is expected to receive $10 million from them this quarter as a result of the FDA's accepting its application.
With 80% of the CAPS members rating Affymax believing it can beat the Street, they're hopeful of a positive outcome. But its low two-star rating suggests that you might want to find other places for your money. Add the stock to the Fool's free portfolio tracker and tell us on the Affymax CAPS page your thoughts about it prospects.
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 contributorRich Dupreyowns shares of Cisco Systems, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of EMC and Cisco Systems.Motley Fool newsletter serviceshave recommended buying shares of Cisco Systems, McDonald's, and Kellogg. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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