Profits in Small-Cap Stock: Where You Have the Advantage Over Warren Buffet

What if I said I could make you 50% a year? Scratch that. What if I told you that I know I could? Better yet, I'll do it using nothing more than publicly traded stocks that any retail buyer can pick up.

But there's a catch.
It can't be done buying Coca-Cola, American Express, or even Berkshire Hathaway. Instead, you have to back up the truck on lightly followed small cap stocks -- the very ones where retail investors have the advantage over institutions.

In fact, in this situation, you even have an advantage over Wall Street maven Warren Buffett. He may be the world's second richest man next to Bill Gates. Everything he's touched turned to gold -- Coca Cola, Berkshire Hathaway, GEICO, Gillette, The Washington Post, and American Express. He's regarded as godlike by Wall Street, with the power to move markets with his words.

Small-cap envy
But his billions are keeping him from buying the very stocks he wants to buy. And if you don't believe me, here's what he had to say in 1999.

"The universe I can't play in [small caps] has become more attractive than the universe I can play in [large caps]. I have to look for elephants. It may be that the elephants are not as attractive as the mosquitoes. But that is the universe I must live in."

What does that mean? It means Buffett may be a little jealous... well, just a little. He's the second richest person in America with the knowledge that mosquitoes are still producing 50% a year, as compared to large caps today. He's painfully aware that from 1925 through 2005, small cap stocks returned annual 12.6% returns, as compared to annual returns of 10.4% for large cap stocks.

Exponential profits in small caps
Truth is, exposure to small cap stocks is a necessity if you want to build a strong portfolio and accumulate lasting wealth. Even Buffett will tell you that after seeing how small cap stocks have performed from 2003 to present day.

Despite a YTD 125% move, Elixir Gaming (EGT) remains a relative unknown with exposure to the explosive Asian gaming markets. It's now trading just below multi-year highs after announcing agreements for another 700 electronic machines.

What's impressive is its exposure to Las Vegas and the growing popularity of Macau. While it's not yet profitable, buying now is the smart play. And here's what I mean: there are only two analysts covering this Asian gem.

This baby is well below Wall Street's radar.

Small caps profit from Asian gambling addiction
EGT is still a small and highly speculative name with a $162.3 million market cap and a float of 18.2 million shares. We're looking for additional investor interest once it shows up on the 52-week high lists again.

Just to give you some background on Asian gaming growth, take a look at Macau at the tail end of 2006. In less than a year, Macau saw visitor growth soar by some 12% thanks in part to a raft of casino openings in the region. And it's only expected to skyrocket even more as casino developers rain down on a region where 1.3 billion people live within a three-hour flight of Macau, and another 100 million people are within a radius of a three-hour drive, according to Macau Business News.

What does that mean for investors? Buy any company that'll be involved in Macau casino growth.

And how about the fast-exploding $900 million social networking market!

In fact, Visa, Mastercard, and American Express -- all the big players responsible for processing more than $6.6 trillion in annual credit card transactions -- have partnered with Concur. Even payment process behemoth Automatic Data Processing, has partnered up with them. Clearly, Concur has got something good going on here.

There's explosive growth appeal for Facebook, which will IPO one day along with LinkedIn and Classmates. U.S. visitors to Facebook have doubled inside a year to 33.7 million, as MySpace visitors grew 23% to 68.4 million.

But are there undervalued, under-the-radar-gems that already exist for small cap investors?
Israel's IncrediMail (MAIL) allows users to add thousands of e-mail backgrounds, Emoticons, Ecards, sounds, animations and 3D effects to e-mail. It's fun for the younger generations who are flooding the social networking scene. But here's why investors should pay attention.
IncrediMail Ltd. (MAIL) has been flying under the radar since early 2006, all the while posting impressive growth and profitability. Numbers prove it's just beginning to scratch the surface of long-term profitability.

Q2 2007 revenue increased 111% to $4.3 million. Six-month revenue soared 106% to $8.7 million. And net was up 59% to $600,000, thanks in part to advertising revenues, which just hit $1.9 million and growing. Insiders are loading up. There's no debt, and $28.7 million in cash on hand. And there's a severe shortage of analyst coverage.

For a profitable company to be growing its bottom line that fast, this is a steal. And it doesn't hurt that other Internet companies have shown real interest, including (from what I've heard), Facebook.