It's almost draft day for small cap up-and-comers - and I've got four contenders that could make the cut this Friday. If they do, there's a good chance these companies could see shares pop. 

Yesterday I alerted you to this Friday's Russell Reconstitution, and mentioned the profit opportunity. If you missed yesterday’s issue, you can click here to get caught up. But to quickly recap: once a year the Russell indexes add and subtract companies, and the event is happening this Friday. So I’ve been doing my homework to find companies that might get listed on the Russell 2000 small cap index.

Now let’s get down to business and look at some of these potential Russell 2000 additions.    

I sifted through company after company that met the criteria to be included in this year’s rebalance. And I've picked out a few that I’m excited about. These companies, in most cases, have never been listed on a major index - or even a minor index for that matter - so getting listed could have a substantial positive impact on their stock prices this Friday. 

The company's I’ve picked have shown strong results recently and should hold up well even if they don’t get the coveted call from 'coach' Russell on Friday.

If they do get that call, their stocks could be looking at a very nice June indeed.

**The following four stocks meet all the criteria required to get included in the Russell. If you take small positions in each of these companies, you’ve got a decent shot of getting into a company before it gets the Russell listing bump, which in 2009 amounted to an average single day gain of 8%. Not bad for a day’s work.

Golden Star Resources (AMEX: GSS)

This Colorado headquartered gold mining company has a market cap of $1 billion. The company has proven or provable reserves of 3.73 million ounces in West Africa.  A forward P/E of 18 and a trailing P/E of 47 mean this company already has a premium associated with shares. But there’s opportunity for investors to strike gold if the stock price readjusts on news of greater earnings projections.

As Wyatt Investment Research's Resource Prospector Editor Kevin McElroy will tell you, there is still a lot of upside for gold prices. An overbought dollar and an overleveraged Europe virtually guarantee we haven’t seen the end of gold’s rise. 

In the gold mining sector, Golden Star is one of the most leveraged companies to changes in the price of gold. The company's net asset value typically sees a 3.4% increase for every 1% increase in the price of gold.  

The firm reported a big discovery in March near its existing mines, nearly ensuring a steady stream of revenue and profit for the foreseeable future. An analyst from Canadian Imperial Bank of Commerce has a $5.50 price target on shares and consensus estimates from MarketWatch are calling for $4.78 a share. Both targets represent significant premiums over yesterday’s closing price of $4.14, and on average imply   23% percent upside in the stock price - regardless of whether or not the company makes the Russell 2000 cut.

Targacept (NASDAQ: TRGT)

Targacept is a $580 million biopharmaceutical firm that treats diseases of the central nervous system. The Winston-Salem, North Carolina based company focuses on neuronal nicotinic receptors - the area of the brain that craves nicotine. The company also has a few potential 'blockbuster' depression and adult ADD drugs in the works, as well as a lucrative partnership with AstraZeneca.

The company didn’t have a great 2009, with earnings before interest and taxes (EBIT) sinking to a loss of $40 million from a 2008 loss of $28 million. But Targacept’s first quarter earnings this year were much better, coming in at $0.24 a share and topping the analyst EPS consensus of $0.15. This performance puts the company back on track to get listed on the Russell 2000. One area of concern is analyst estimates for negative earnings in 2011 - this requires more analysis than I had time for this morning.

A range of promising drugs in Phase I and II of FDA approval is helping to support MarketWatch's analyst consensus share price of $35.00, a 70% premium above yesterday's close. With each graduation to the next phase of FDA approval, this stock will become significantly more attractive to investors. Keep an eye on it, biotech companies can be hugely speculative - but also hugely rewarding. We'll see if the folks at Russell Investments like Targacept on Friday. 

ArthroCare Corporation (NASDAQ: ARTC)

ArthroCare is a $800 million medical device company that specializes in development, manufacturing and marketing of low-impact surgical products. Revenues for the quarter ending March 31, 2010 were up 15% from the same period last year, to $90.6 million. Earnings per share for the quarter improved to $0.24 from a loss of $0.24 in the comparable quarter in 2009. With a low debt capital structure and a recent increase in cash reserves, the firm is well poised for the future.  

The company had been held back by some accounting irregularities - this is always a huge red flag. The biggest issue was an overstatement of revenues, possibly going back to 2000. But a reshuffle of the company’s management and another year could give ArthroCare’s new management a shot at getting in to the Russell.

LTX-Credence Corporation (NASDAQ: LTXC)

LTX-Credence has a market cap of $392 million and manufactures test equipment for semi-conductors and other digital and wireless devices. The company's PEG ratio of .92 means that growth is cheap, as investors are only paying 92 cents for every dollar of growth. The company showed strong growth in the third quarter, earning $0.05 per share as compared to a $0.22 loss per share in the third quarter of the prior year. Management expects EPS to double to $0.10 in the next quarter.

With semi-conductors in all of today’s biggest consumer items, like smart phones, GPS gadgets and tablet computers, an upswing in the sales of these products means a boost for LTXC. The recent announcement of the 4^th generation iPhone, combined with continued strong sales of the iPad are sure to play a big role since LTXC tests Apple component equipment.

With a market poised to expand over the next year, and LTXC continually gaining market share, the company is in the right place at the right time.

A 3 to 1 reverse stock split is expected in the near future, but for now analysts are setting their price targets at around $5.50. This would be a huge jump from the current share price of $2.72. Reverse stock splits can be a mixed bag - more research is needed to understand management's motivation in this case.

***All of these stocks have seen buyers emerge in May, a possible sign that investors expect them to be accepted in the Russell 2000. The degree to which speculation has already been priced in is difficult to determine, but there still appears to be upside potential for all companies over the next six months to a year.

I don’t imagine all four of these companies will get listed this Friday, but they all have a very good chance and fit the criteria. Remember that there are reasons they haven't made the cut before, so please do your own research before initiating a position in any of these companies.  

Tomorrow I’ll dig a bit deeper into my favorite company on today's list. If there’s one in particular that you like send me an email at editorial@smallcapinvestor.com. I’ll review the company that generates the most interest from you.

These stocks should all be decent long term small cap investments. If things go well on Friday's 'draft day' the short term could be pretty nice for the Russell's new team members as well.