Wall Street pros have nothing on retail investors who stake small sums of money monthly on undervalued small-cap stocks. Because they're mostly ignored by the big guns, these types of stocks offer the best, outsized opportunities for growth.
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 Motley Fool CAPS community and those they think have the best chance for winning.
Here are two stocks this simple screen found:
EPS Act. vs. Est.
Avg. Analyst 5-Yr. EPS Est.
IMAX (NAS: IMAX)
Procera Networks (NYS: PKT)
Source: Zacks 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 marquee name
When it comes to the big-screen experience, moviegoers are more impressed with the screens the films are shown on while investors also want to track how they're being made. While they do tend to go hand in hand, the former is a one-shot revenue enhancement for movie mogul IMAX; the latter becomes a recurring source of revenues.
Some analysts, however, are disenchanted with IMAX's slower-growth option for screen expansion, worrying that the falling backlog of placements will hamper future growth. A more bullish outlook sees the growing number of films being shot in the IMAX format and notes there's still plenty of potential to be realized.
Last quarter revenues jumped 23%, even though backlog of theaters contracted to be installed fell to 280 from 294 a year ago. This year, anyway, IMAX expects 110 theaters will install its technology, up from previous forecasts of 95 to 100 theaters. Yet revenues from movie production surged 59%, to $19.7 million, accounting for 28% of total revenues.
There might be some sense to focus on the views of filmmakers for the time being and not the moviegoers. 3-D movie specialist Real D (NYS: RLD) added 7,200 screens over the past year but revenue fell 14%. Dolby Labs (NYS: DLB) , another major 3-D cinema leader with 20% share of the market, also saw declines in its digital cinema products, both 3-D and traditional. The market just seems sluggish for broadly expanding the base right now, so IMAX is smart to push the end that will give them more recurring revenues. It's also realizing widening margins from its production segment whereas systems are flat.
At 20 times earnings estimates, IMAX is offering a discount to Real D, though individual theater operators like Regal Entertainment and Carmike Cinemas go for much less. With over 1,600 CAPS members weighing in, 93% believe IMAX will still outperform the market indexes, but tell me on the IMAX CAPS page or in the comments box below if you agree that analysts are missing the big picture.
Using Procera Networks' intelligent policy enforcement technology wireless carriers, cable operators, and government facilities are able to efficiently manage their networks. These systems are seeing more traffic growth than ever before. With the proliferation of mobile devices at home, in the office, and while on the road, multiple system operators, or MSOs, need to know what devices are active on the network, what they're streaming, and the quality of the streams being received.
Procera's technology provides all that, and it's growing in importance. As Procera says, it allows network operators to drill down into their network and achieve detailed understanding of subscriber, device, application, and location-based analytics.
Despite the mission critical nature of its business, Procera tends to fly under the radar of much of Wall Street and Main Street, living in the shadow of larger rivals like Cisco (NAS: CSCO) , though with its stock up 125% over the past year, analysts are waking up to its prospects. All five analysts following Procera on CAPS rate it to outperform the broad market averages (and 97% of the CAPS members weighing in concur).
Tell me know in the comments section below whether the really intelligent thing here is to climb aboard the stock now.
Foolish final thoughts
Mining the data through technology like Procera provides is creating a new breakthrough industry and The Motley Fool identified one company it sees as surpassing all others in the field. It's published a report titled "The Only Stock You Need to Profit From the NEW Technology Revolution" and you can a copy of it -- and the stock the editors believe will outstrip all others here -- free of charge. But while the report is free, it's only available for a short time, so ask for your copy today.
The article Start Small, Win Big originally appeared on Fool.com.
Fool contributor Rich Duprey owns shares of Cisco Systems and Dolby Laboratories, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Cisco Systems. Motley Fool newsletter services have recommended buying shares of IMAX and Dolby Laboratories. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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