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My recent experience with another company, China MediaExpress (OTCPK:CCME) will help me lead into a discussion before giving some insight into two companies. China MediaExpress was a huge learning experience and an expensive one at that, not just for myself, but many other investors. It was not just the small investors that were fooled by this company, but even Starr International, who did weeks and months of research and had continual access to information, was fooled with this stock and by management.

Of course, I still do not know the answers or what is correct about this company, but I do know that it was a poor investment with even worse decisions. The amount of business that actually exists is still unknown and it may never be known, but red flags existed. They were easily explained away, one after another, after another. The explanations made sense. Anyone who had anything negative to state was shunned, including myself doing it to even the intelligible naysayers. I even got an email from a trusted source that I completely ignored because the information could be explained away, I thought. So yes, I made a mistake by not only investing in the company, but having too much faith in one company and touting the company on several occassions, in several articles. But, the mistake was not actually investing in the stock as I put a lot of effort toward gathering information and trying to come to a quality decision, but allocating too much towards any one stock. That is one of the golden rules, diversify, diversify, diversify. I found out the hard way how important it is. It does not mean hold 30% in 3 stocks, but allocation that makes sense and it is also dependent on risk as well. If your investment goes to zero, it shouldn't kill your portfolio. In all of this and all of the confidence that I had and all of the information that I thought I had and all of the knowledge I thought I held and that I thought I could not be wrong, that went out the window and smacked me in the face with a big humble pie. Basically, every investor probably knows less than they think, but there is always room for learning, gaining knowledge and gaining experience to make anyone a better investor. I realize that I should never have been so confident with CCME as I could not do the neccessary groundwork that is required for a China small cap and I know far less about the space than I thought that I did. What is also important with any company is to welcome all sides of the argument as it will only help make a better decision and think about information that is obtained through research, with a stricter microscope.

If there is a red flag, take it seriously. Force yourself to do more research on that issue and obviously ensure that with that red flag in place, that it is still worth the investment and much of the emotion in a stock is going to have to be taken out for that to happen. Every legitimate negative thing in regards to a company is explained away so easily and try to look at through all angles and if you were not invested in that particular company. Many investors also have to realize that mistakes are going to be made and not a single investor is going to be right all of the time. It took a lot of humility and money for me to realize this, but it will help me limit my mistakes going forward. Experience is definitely not overrated in regards to investing.

The above is something to think about with all investments, but especially small cap stocks in which investors must bank on the future without too much of a past. Of course, with these stocks, some risk is involved, but due to the potential and where they currently stand, these 2 stocks are worth a look. As stated above, this is not an endorsement to throw everything at just these stocks, but companies that I feel can give a quality return and at least deserve an extra look. They also have a good amount of risk, some more than others and for differing reasons. There are two others that I like as well that trade on the pinksheets which because of that and the price they trade may be deemed too risky by some, but they are also worth a look.

1) Mad Catz Interactive (NYSEMKT:MCZ) - They are in the gaming industry and sell different products for certain games and computers. One of their most successful partnerships is with the game Rockband in which they sell the accessories for that game. Some of their other licensing agreements are with Call of Duty, Modern Warfare, Gears of War, The Sims, NFL, NBA, MLB, NHL and more. Some of there other products are sold through other brands such as Saitek, Eclipse, Cyborg, Tritton and Gameshark. They are quickly expanding, ehancing their portfolio and their relationships with some of the biggest names in the industry.

What I believe to be even more important is that they had an amazing year and 4th quarter financially, but yet after the results, the stock has slid about 10%. Soon, if not already, the stock will be oversold. Based on 2011 full year results they are trading at a current P/E of about 9. Here are some highlights of the financials.

Full Year

  • Revenue growth of about 55%
  • EPS growth of about 125%

4th Quarter

  • Revenue growth of about 28%
  • EPS growth of about 50%

Those two metrics are the straight forward way to show their growth over the last which was incredible. Plus, their 4th quarter is generally very slow. They are rapidly growing and beginning to get their EPS to be more consistent. Forward P/E based on expectations is going to be about 7. In their recent conference call they also stated that debt was being brought down and that they will retire 10.22 million common shares

Some of the risks as they are still growing and the niche that they are in, are some of the relationships that they have with certain games such as Rockband. So expansion of their products is neccessary and occurring. Also, much of their revenue is derived internationally, which rates could have an effect as well.

2) Miller Energy Resources (NYSE:MILL) - This company does exploration, production and drilling for oil and natural gas.

For years Miller Petroleum's business was based out of Tennessee, but about a year and a half ago they got a deal of a lifetime. Miller was able to aquire about $300 million to $500 million worth of assets for under $5 million. The previous owners got into a lot of debt and oil was also down for a lot the time as well. Miller Petroleum entered in at the right time. From that point the stock shot up, but for over a year it has been sitting around the $5 mark. They seem to deliver on their word, maybe at a slower pace than some would like, but it is to be expected. Many investors wondered if they could get the long-term financing to fund their development without significantly diluting the stock and that is just what they did. On June 13, 2011, Miller Petroleum announced that they secured a $100 million credit facility. There are no excuses left for Miller Petroleum. The price still has not moved really since this announcement, which is major. Obviously, it is yet to be seen that they will produce as expected, but it is looking very good right now.

Obviously, do your own research and follow up to see if it may fit an investment criteria. Some definitely hold more risk than others and in the same boat, some will offer higher rewards. Just do the research if your are interested and remember to take into effect that mistakes will be made and to not let one stock hurt your entire investment. Some lessons are learned the hard way. Learn as you go and know every aspect of a company, both good and bad.

Source: Learning the Lesson From China MediaExpress and 2 Stocks Worth a Look