10 Little Stocks With Big Potential

10 Likely Micro-Cap Winners

In other words, the way to make macro profits from the current economic recovery is by putting some money in micro-caps. And I've put together two screens and followed up with some due diligence on individual stocks to identify 10 micro-caps likely to outperform the average stock.

10 Micro-Caps Under the Microscope Sometimes good stocks come in little packages
Stock	Industry	Market Cap ($ million)	Shares Outstanding (million)	Analysts Covering Stock	YTD Return
American Vanguard (AVD:NYSE)	Agricultural chemicals	$166	5.8	0	94%
Atlas Pipeline (APL:NYSE)	Natural gas pipelines	152	4.4	1	46
Calavo Growers (CVGW:Nasdaq)	Avocados and produce	108	12.9	0	19
Cohesant Technologies (COHT:Nasdaq)	Adhesives	14	2.6	0	38
Concorde Career Colleges (CCDC:Nasdaq)	Education and training	124	5.9	0	67
Fargo Electronics (FRGO:Nasdaq)	Business software and services	166	12.4	4	53
Great Northern Iron Ore (GNI:NYSE)	Iron ore	132	1.5	0	50
Middleburg Financial (MBRG:Nasdaq)	Banking	141	3.8	1	62
Onesource Information Services (ONES:Nasdaq)	Internet information	117	11.3	2	34
Silent Witness (SILW:Nasdaq)	Security and protection services	64	7.5	0	109
Source: MSN Money

OK, so what's a micro-cap stock, anyway? And how did I put together this list of what I believe are good ones?

These Aren't Penny Stocks

A micro-cap isn't the same as a penny stock. The latter term is used for any stock that sells for a low price per share, often $5 or less. A micro-cap stock, on the other hand, can sell for a high price per share: For example, Great Northern Iron Ore (GNI Quote), another stock that made my micro-cap list, sells for $89 a share.

What makes a micro-cap a micro-cap is the combination of price per share and a very small number of outstanding shares. Great Northern Iron, for example, has only 1.5 million shares of stock outstanding. Contrast that with the 10 billion shares of General Electric stock outstanding.

Multiply the price per share and the number of outstanding shares, and the total market capitalization of Great Northern Iron is a tiny $133 million, despite its high share price. General Electric, on the other hand, trades for a lower price per share of $28 but has a much higher market capitalization of $280 billion because the company has issued so many shares.

By my definition, then, if you ranked all of the stocks in the market by market capitalization, the micro-caps would be those in the lower 25% of the pyramid, with a market capitalization of $200 million or less.

Before you dive into the micro-cap market, you should know that there is a downside. (There's no free lunch in investing.) Because there are so few shares outstanding, very few shares of these stocks trade on the average day.