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 because they're mostly ignored by the big investors.
Below, we screen for stocks under $3 billion in market cap, those 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 of 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.
Cepheid (NAS: CPHD)
Rubicon Technology (NAS: RBCN)
Source: Yahoo.com and Motley Fool CAPS.
Of course, this is not a list of stocks to buy - it's 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.
It's all in the genes
Genetic-analysis specialist Cepheid has placed nearly 2,500 GeneXpert diagnostic systems around the world, with international markets seeing the greatest number of placements in the most recent quarter. But with the domestic market accounting for some 80% of its revenues, Cepheid sees its growth opportunities as lying overseas.
The problem is the macroeconomic environment points to extremely cautious capital spending by labs and hospitals, making it difficult to gain ground, particularly when rivals such as Myriad Genetics (NAS: MYGN) and Genomic Health (NAS: GHDX) also continue to tout their own international opportunities. In its last earnings call, Myriad boasted of opening new labs in Europe that should lead to more international expansion, while Genomic has talked about international markets driving top-line growth this year.
Cepheid's largest installed base, however, might help explain why 91% of the CAPS members rating the company now see it outperforming the broad indexes. It's enjoying higher royalties, a better product mix, and greater volume, all of which point to a long-term benefit. Tell us on the Cepheid CAPS page if the medical diagnostics specialist will test new highs, then add the stock to your Watchlist to see how it turns out.
Burnt out bulbs
The LED lighting industry was supposed to have a bright future, particularly after the dim bulbs in Congress ordered a phase-out of the incandescent bulb, with compact fluorescents a poor substitute. Yet analysts say that government subsidies to Chinese manufacturers have created a glut that will take years to work off -- and it's pushing for still more subsidies. As yesterday's earnings results by SemiLEDS showed, that's going to weaken the market, not strengthen it.
The LED chip and component maker saw a 48% drop in revenues year-over-year as it pushed into the home lighting market, and it expects to record a loss in the second quarter of as much as $0.28 per share. Its shares are down 87% over the past year. Aixtron (NAS: AIXG) hasn't tumbled quite so far, but it's still off more than 64% over that same period and reported a stunning 58% sales fall-off last quarter.
Rubicon Technology, as a provider of sapphire substrates to the industry, has been hurt just as much as other players from an oversupply. But as manufacturers move towards larger wafer sizes, an eventual recovery in the space will have Rubicon positioned to gain because its products will result in a natural drop in LED pricing, rather than the artificial gains achieved by the subsidies. High cost has been the prime stumbling block in broader adoption of residential LED lighting.
Biggest rub appears to be negative cash flow. If company has completed upgrade to large diameter wafers as they say they have, investment should decrease and profits increase dramatically. Could be a rapid turnaround in investor enthusiasm.
Add Rubicon Technology to your Watchlist and tell us in the comments section below if you think the it can shine a light on growth.
Foolish final thoughts
These companies have the odds stacked against them, but The Motley Fool has identified two stocks also facing difficult times yet still growing revenues hand over fist. The report is free, but it's only available for a short time, so ask for your copy today and find out who the two cash kings are changing the face of their industry.
At the time thisarticle was published Fool contributorRich Dupreyowns shares of Aixtron SE, but he holds no other position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshas recommended buying shares of Genomic Health. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not 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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