This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Choose David Over Goliath

However, had you employed Greenblatt's strategy over that same timeframe, screening through all 3,500 stocks with a market-cap over $50 million, your annualized return would have been 30.8%, about eight percentage points better, which is a very substantial margin.

Picking individual names in the small-cap world requires some work and some common sense. Avoid highly leveraged balance sheets. Look for stable businesses with high earnings and cash flow yields that have a track-record of delivering returns to shareholders. Understand the underlying business that drives the company and have some confidence in its prospects to thrive in the future.

How do you find them? Small-cap stocks are probably best found through word of mouth, or from a writer who has earned your trust.

You could start by taking a look at companies that have been on my radar a while, including L.B. Foster (FSTR), Gentex (GNTX) (with a market cap close to $3 billion, it's more of a mid-cap, I suppose), and also the Canadian gold-streaming company Sandstorm Gold (SAND).

Or, you could just follow Greenblatt's "Magic Formula." That's not as much fun, though.

At the time of publication the author had a position in SAND but doesn't own shares in any other stocks mentioned in this article.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
YHOO $44.36 0.00%
TSLA $231.55 0.00%
AAPL $132.65 0.00%
FB $81.91 0.00%
GOOG $555.37 0.00%

Markets

DOW 18,037.97 -42.17 -0.23%
S&P 500 2,108.92 -8.77 -0.41%
NASDAQ 5,060.2460 -31.8390 -0.63%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs