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 growth opportunities for growth because the big investors mostly ignore them.
Here I'll screen for stocks with less than $3 billion in market cap that 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)
MIPS Technologies (NAS: MIPS)
VirnetX Holdings (ASE: VHC)
Sources: Yahoo.com and Motley Fool CAPS. NM = not meaningful; VirnetX posted an $0.11-per-share profit for the quarter, beating analyst expectations for a loss of $0.06 per share.
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.
Good humor, man
When Google (NAS: GOOG) released its Ice Cream Sandwich mobile operating system, it was heralded as a unifying force between smartphones and tablet computers. It was also suggested as the gateway for Google to introduce a Nexus tablet, giving new life to the Android platform.
Maybe it won't jump-start the brand, but MIPS Technologies and Ingenic Semiconductor have unveiled a sub-$100 tablet computer that could spur big sales for the chip designer. Available right now only in China, it will be available internationally in a few months.
A year ago, MIPS was in a situation that found it overpromising and underdelivering. That might have bought it some time, but when some new contracts failed to come through, the stock was punished. One of its largest shareholders, Starboard, was also dissatisfied with the current board of directors and offered a slate of candidates to replace them, as they've steered a course of value destruction since the IPO. It was time for a new direction. MIPS ultimately placed two new independent directors on its board.
This could all help explain why 93% of the CAPS members rating MIPS now see it outperforming the broad indexes. Along with improving financials, it marks a change of fortunes for the chip designer. Tell us on the MIPS Technologies CAPS page whether you think the new tablet and the fresh blood mark a new opportunity for the company, and then add MIPS to your watchlist to see how it turns out.
The new year brings the prospect of some big victories for 4G security specialist VirnetX Holdings, at least in the legal arena if not in the marketplace. It has patent-infringement lawsuits against Apple (NAS: AAPL) , Cisco, and others, with the Markman hearings in the cases scheduled to begin this month. It has better standing now after the U.S. patent office denied Apple's request to re-examine VirnetX's '180 patent. Markman hearings iron out interpretations of various patent claims before a trial begins.
While having a valid patent puts it in a better position, it's not a guarantee of a win. Earlier in 2011, it had scored a major victory against Microsoft (NAS: MSFT) that saw the software giant settle the lawsuit for $200 million. Similar wins against Apple and Cisco could be just as lucrative and the start of a licensing avalanche of its 4G security patents to other major players in the mobile industry. Heady growth would only be just around the corner.
For the CAPS community, that's a few too many "ifs" for their liking. Only 58% of the nearly 200 members rating the 4G specialist think it can beat the market and All-Star member GundersonGroup instead sees the downside mounting: "Losing money for the foreseeable future, >14x TBV, chart and overall market are bearish."
Add VirnetX Holdings to your watchlist, and tell us on the VirnetX CAPS page or in the comments section below whether you think the patent cases give it a secure future.
Foolish final thoughts
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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 Microsoft, Apple, Cisco, and Google and has created a bull call spread position on Cisco.Motley Fool newsletter serviceshave recommended buying shares of Google, Apple, Cisco, and Microsoft, as well as creating bull call spread positions in Apple and Microsoft. 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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