Taking advantage of the long weekend, small caps expert James Faulkner has picked out five exciting small cap stocks with excellent growth potential. In this article, originally published on Saturday, he forecasts that by the time of the bank holiday (at Christmas), these five stocks will have doubled in value.

Tomorrow, exclusively on WatsHot.com, James will be publishing a brand new hot tip on a small cap stock that looks cheap vs growth and could benefit from M&A activity in its sector.

To find out what this is, plus read James' daily column and weekend editorial, join WatsHot.com now.

NB: The share prices mentioned below, and any calculations based on them, are correct as of Saturday 28th August, when this article was first published.

Range Resources (RRL) – Take a punt on Puntland

Oil minnow Range has producing assets in Texas and Trinidad, along with exploration acreage in the Republic of Georgia. However, the main attraction is its 20% stake in the Nogal Basin and Darin Basin Blocks in Puntland, Somalia. Just one of the two blocks is purported to contain between 2.2 billion and 10.4 billion boe (barrels of oil equivalent), and there is every reason to believe the other basin offers similar prospects. Range was recently given the go-ahead by the Puntland administration, with the drilling of the first exploration well by its farm-in partner Africa Oil scheduled before the end of 2010. Notably, Range is free carried until Africa Oil has spent the $50 million earmarked for exploration. Even modest drilling success in Puntland could see Range shares rocket, as the current valuation looks underpinned by the firm’s other assets.

Sirius Exploration (SXX) – China eyes potash reserves

BHP Billiton’s bid for PotashCorp could be a ‘buy’ signal for salt and potash prospector Sirius Exploration. There is an argument that the share price has been suppressed, first by the offloading of shares from investors in AusPotash and Adavale (both acquired in 2009), and then by the collapse of stockbroker Wills & Co, a major investor. The market currently seems to view the Australian deals as being dilutive, but upcoming drilling could presage a change in perceptions. Part of the lack of interest may also be down to the fact that the Australian assets lack exploration data, but broker Daniel Stewart notes that one of the previous operators estimated that each square kilometre contains at least 21 million tonnes of salt. “In short, there is the potential for a very large deposit of salt and potash,” observes the broker. Potash demand is forecast to rise dramatically as it is used as a raw material for fertiliser. The current £17 million market cap is less than the company paid for its Adavale acquisition in 2009 – just one of its four projects. The shares rallied recently on news that it has signed a Memorandum of Understanding with Sino-Agri Mining (a division of China’s second largest fertiliser distributor) to develop the Adavale property in Queensland. There could be more action in 2010 as the firm is due to begin drilling its Dakota properties at the end of the year.

Since James made this recommendation on Saturday, the Sirius share price has already increased by over 27%!

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EKF Diagnostics – A good prognosis

German company EKF Diagnostics was recently reversed into cash shell (ex-sportswear IP business) International Brand Licensing in a deal worth £11.8 million. The firm has a top-notch management team with a track record of building successful diagnostic companies, including serial healthcare entrepreneur David Evans as Executive Chairman (who is to take his salary in shares). The company develops, manufactures and distributes instrumentation and re-agents in the largest segments – mainly diabetes, haemoglobin, cholesterol, liver and kidney function and lactate testing – of the Point of Care market, which is growing at a rate of around 9-10% per annum. The market is highly fragmented. My back-of-the-envelope estimates have EKF shares trading on a rating of around 8 (stripping out cash and sale proceeds due of around £6 million, and assuming a standard 30% tax rate), so they look cheap in comparison to the firm’s larger peers. Acquisitions should bring that multiple down even further. With diagnostics peers typically trading on high-teens multiples, there is the potential for this one to double if management can deliver on their strategy.

Independent Resources (IRG) – Short-term drilling play

Independent’s main interests are a gas storage project and a coal bed methane project in mainland Italy, but it also has an 18.97% stake in the Ksar Hadada oil licence in Tunisia which could yield massive short-term upside if upcoming drilling results are positive. The first of the two Ksar Hadada prospects, Oryx, came a cropper earlier this month. However, the second prospect, Sidi Toui, is estimated to hold 161 million barrels of recoverable reserves and has a chance of success factor of 40%. Moreover, drilling is at nil cost to Independent, as the company is fully carried for the drilling of the first two wells. To put the resource potential in a share price context, on a success basis, Seymour Pierce estimates that Sidi Toui would be worth 250p per share to Independent, versus the current share price of 78p.

Begbies Traynor (BEG) – HEDGING TRADE

If the tabloids have been getting the better of you why not hedge your portfolio through corporate insolvency specialist Begbies Traynor? The shares traded on a rating in the high-teens during the recession, but current forecasts for the year to April 2011 put them on just 8.1 times forecast earnings, and there’s also a 5.7% yield to get your teeth into. Recent full year results showed revenue up by 11% at £69.1 million, adjusted pre-tax profits up 6% at £10.4 million and adjusted EPS of 7.8p. In line with its progressive dividend policy, the firm increased the full year dividend by 11%, demonstrating its confidence in its future prospects. Moreover, Begbies also recently sought approval to buy back up to 25% of its issued share capital, the directors believing the current share price significantly underestimates the group’s potential. Even if the economy doesn’t slump back into recession, the firm should continue to benefit from the tight credit markets which should provide a steady trickle of insolvencies. In the event of relapse into recession, that trickle could turn into a flood and the shares will fly.

On WatsHot.com, small caps wizard James Faulkner provides 2 hot new tips each month with frequent updates whenever there is significant news. Plus, subscribers also get a daily column and weekly editorial from James, as well as daily technical analysis from as-seen-on-TV chartist Zak Mir.

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* The value of investments can go down as well as up. Past performance is no guarantee of future success. Investing in equities can lose you part or all of your capital. The tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the recommendations contained here should seek independent advice. Financial spreadbetting is a higher risk activity the losses on which are theoretically unlimited.