Finding Undervalued Stocks Poised to Explode

1. Finding Undervalued Stocks Poised to Explode We all would love to get in at the bottom floor of a wonderful upcoming business ready to ride the profit elevator up to new heights. Where do the best opportunities lie in finding those best-of-breed businesses ready to take off in the markets? Having a simple set of criteria to help guide you in your decision-making process is critical to consistently picking those winners. Here are the top 6 criteria discussed by the experts at Paradigm Capital Management for you to consider for finding those undervalued stocks poised to take off: 1. Company size: Look for small to mid-cap companies with a market capitalization between $250 million and $1 billion. These emerging companies have the greatest potential for upside growth in terms of market exposure and profitability. The Apple's, Google's and Wal-Mart's of tomorrow all started with humble beginnings. 2. Stability: Look for companies that have a low Beta ratio of less than 1.0. Beta is a measure of the sensitivity of the company's returns compared to market returns. In theory, a stock whose returns vary less than the market's

2. returns has a Beta with a value less than 1.0, thereby being less volatile and potentially risky. 3. Solid Fundamentals: Look for companies that show growth rates in excess of 10% per year consistently over at least a 5-year period for the following: ROIC - return on investment capital BVPS - book value per share or equity EPS - earnings per share Sales Free Cash Flow The key is to identify those businesses that have consistent year-over- year growth rates. The major stock market websites that post company financials will have the raw data that you need in order to calculate the growth rates. For a simple Excel spreadsheet that will convert the raw data into meaningful growth rates, please visit Stock Investing Simplified. 4. Value: Look for a PEG ratio that is less than 1.0. A lower ratio is better (cheaper & healthier stock) than a higher ratio (more expensive). PEG is calculated by dividing the P/E ratio by the earnings per share (EPS) in order to better compare companies with different growth rates. 5. Global Exposure:

3. Find out if the business in question earns most of, or a large percentage of, its income from international markets. With America no longer being the most important economic market for businesses in today's global economy, finding a company with international exposure to its products and/ or services is critical. 6. Stock Value vs. Stock Price: Look for businesses where Mr. Market has priced the stock below the fair market value of the business. Ideally, you are looking for a stock price that has a big margin of safety (MOS) price of 30 -50% below its fair market or intrinsic value price. Several subscription websites provide fair value estimates for businesses. However, should you like a simple approach to help you assess the MOS price for a business, please check out the articles on best-of-breed analysis at Stock Investing Simplified. Once you have used the 6 criteria outlined above to identify potential companies, place them on your personal watch list. Now it's time to get up close and personal and to only invest in those businesses that you understand and that you would be willing to monitor on a weekly basis for any changes to the fundamentals, market forces or competition. This simple, step-by-step approach to analyzing stocks should help you identify those emerging companies with the potential of rising to new heights.

4. Further you can check out our small cap stocks at Paradigm Capital Management Inc. Paradigm Capital is a privately held trusted leader in small cap investing in Albany, NY and employs a disciplined, bottom-up approach with an emphasis on fundamental analysis and extensive management contact. To learn more, please visit here: http://paradigmcapital.com/