Stocks Under $10 Weekly Summary

In the meantime, earnings season is now largely over. In the model portfolio, only McDermott (MDR:NYSE), due to report Monday evening, has yet to post results. We digested the numbers from nine other portfolio companies this week, and the results were largely positive. Even in cases of potential turnaround plays such as Martha Stewart Living Omnimedia (MSO:NYSE) or Wendy's/Arby's (WEN:NYSE), in which the stocks fell ahead of the reports, we heard guidance from management that suggested business is turning the corner.

With that in mind, there's little action to take in the model portfolio at current levels. We want to be protective of the recent gains we've made in stocks like Yamana Gold (AUY:NYSE) and Cott (COT:NYSE), but would otherwise look to buy any of our other One-rated names on the next market pullback.

Also, now that earnings season has passed, we will again refocus the bulk of our research efforts toward finding new names for the model portfolio. We've been building up a fresh list of companies in recent weeks, and will keep readers up to date as we evaluate them.

As a reminder:

-- A Game Breaker is going to change the landscape of an industry, as Intel, Microsoft and Wal-Mart did in their sectors. Investors can make big money in these stocks by getting in before the crowd.

-- Inflection Point stocks have a broken business model that's on the mend, but has yet to be recognized by the market. Investors who recognize a turnaround early can pocket strong returns.

-- Stealth Stocks are often unknown names to the general public, but can be hugely profitable investments, especially when they have catalysts to boost their share prices.

Also, Ones are stocks that we would buy at their current quotes, Twos are stocks that we would buy on a pullback, and Threes are names that will likely be sold into strength.

ONES

Art Technology (ARTG:Nasdaq, $4.16, 1,000 shares, 3.53% of the model portfolio, Satealth Stock): The company produces software that allows users to develop and optimize e- commerce Web sites. The stock was little changed on the week as the company filed a mixed shelf offering that would allow management to raise up to $250 million of new financing from time to time. While this doesn't necessarily mean that the company will sell any new shares or debt, the prospects are intriguing, as the offering's most likely use would be for future acquisitions. In the meantime, the stock remains attractively valued, given the company's growth prospects.

Cott (COT:NYSE, $9.00, 600 shares, 4.58%, Stealth Stock): Cott produces and distributes soft drinks, noncarbonated beverages and bottled water, primarily focusing on private- label items sold by major retailers. The stock gained about 15% this week, and the company refinanced some of its debt Tuesday. Cott sold $215 million in 8.375% bonds due 2017, effectively pushing out its maturities by six years for the cost of a fraction of a percent of interest. Even though the stock is now more than 40% above our average cost basis, we continue to find Cott attractive, given the company's robust operating and financial momentum.

Diamond Management & Technology (DTPI:Nasdaq, $6.80, 700 shares, 4.03%, Stealth Stock): The company provides technology-consulting services to businesses in a variety of industries. Diamond Management posted blow-out fiscal second-quarter (ended September) results and raised its forward guidance Wednesday. The company is seeing higher consulting demand both in the U.S. and in the U.K., and it signed several new customers during the quarter. In the press release, CEO Adam Gutstein even said, "We believe the worst is behind us." Given the solid momentum at Diamond Management, we maintain that the stock could trade up toward the high single digits over the coming months. In the meantime, the shares continue to sport an attractive 4.2% dividend yield.

Kopin (KOPN:Nasdaq, $4.40; 800 shares; 2.98%; Game Breaker): Kopin manufactures semiconductor wafers that are used in wireless and fiber-optic equipment. The company also makes small LCD screens that are used in a number of products, including consumer electronics and night-vision military gear. The stock was flat on the week even though Kopin announced better-than-expected quarterly results Monday, based on estimates from the single analyst following the company. The company is carrying strong order momentum into 2010, though we believe the shares saw some profit-taking. Given the company's pristine balance sheet and the nascent growth potential of its Golden-i "wearable computer," we continue to believe that the stock is attractive to purchase at current levels.

Martha Stewart Living Omnimedia (MSO:NYSE, $5.13; 1,000 shares; 4.35%; Inflection Point): The company publishes magazines, produces broadcast media and licenses products to retailers surrounding the homegoods segment. Its core brands are centered on its founder and controlling investor, Martha Stewart. We bought 250 shares Wednesday after the company sold off following lower-than-expected quarterly results. That said, the stock bounced back by the end of the week following two analyst upgrades. The reversal in sentiment was driven by the fact that Martha Stewart is now projecting a return to year-over-year growth in the advertising pages of its flagship magazine. That inflection point, coupled with the company's new licensing programs that are set to begin in 2010, lead us to believe that the stock can rebound over the next several months.

Stereotaxis (STXS:Nasdaq, $4.04; 1,200 shares; 4.11%; Game Breaker): The company's main product is the Niobe system, a remote-controlled cardiology instrument system that aids in the treatment of atrial fibrillation (AF) through the use of catheters. The stock gained about 11% this week after Stereotaxis delivered strong third-quarter results Thursday. The company posted higher sales, and cost-cutting helped to reduce the operating loss, but the real key was a sequential increase in capital orders to $6.3 million. Stereotaxis has a strong backlog heading into 2010, and with a growing recurring revenue base, management continues to move the company down the path toward breakeven. As a result, we maintain that the stock could see the mid-single digits over the coming quarters.

Wendy's/Arby's (WEN:NYSE, $4.45; 900 shares, 3.39%, Inflection Point): The company operates more than 10,000 quick-service restaurant locations in the U.S. and more than 20 other countries under its two namesake brands. The stock bounced back this week after Wendy's/Arby's showed some signs of improvement in its third-quarter earnings report Thursday. The company posted mixed results, but North American same-store sales turned positive for the Wendy's chain. Management also has a clear strategy of continuing to boost margins company-wide over the coming quarters, partly via cost-cutting. As a result, we believe the stock can continue to rebound over the coming months.

Yamana Gold (AUY:NYSE, $12.05; 500 shares; 5.11%; Inflection Point): Yamana is a gold and copper exploration company with seven operating mines and several ongoing development projects in Brazil, Argentina and Chile. The stock gained about 13% on the week even though Yamana's third-quarter results were largely in line with its pre- announced results. That's because spot gold prices hit a fresh record high, aided by further weakness in the U.S. dollar. Outside of the macro issues, the company's growth prospects remain intact, with production growth being driven by new mines, as well as the falling of marginal finding costs due to increased scale. With that in mind, the stock remains a core holding in the model portfolio.

Zix (ZIXI:Nasdaq), $1.85; 3,000 shares; 4.70%; Stealth Stock): The company is a leading producer of email encryption software. Zix is also exploring strategic alternatives for its unprofitable e-prescribing division, which allows doctors to automatically send information to pharmacies. We bought 500 shares Monday, as we continue to believe that the stock does not reflect the full growth potential of the company's email encryption business, with management having yet to make a decision about closing or selling the e-prescribing division. Still, we maintain that a resolution will be achieved by the end of the year.

TWOS

Del Monte (DLM:NYSE, $10.75; 600 shares; 5.47%; Inflection Point): The company produces and markets a variety of food and pet products for the retail sector. It was a quiet week for Del Monte, which is not due to report its fiscal second- quarter (ended October) results until next month. In the meantime, we continue to believe that the stock is attractive to hold at current levels.

Epiq Systems (EPIQ:Nasdaq, $12.57; 300 shares; 3.20%; Stealth Stock): The company provides products and services for some of the world's largest law firms specializing in bankruptcies and class-action lawsuits. There was little news out on Epiq this week, confirming our belief that the stock lacks significant near-term catalysts. While the stock remains inexpensive, we'll consider selling more shares into the next rally.

Imax (IMAX:Nasdaq, $10.87; 400 shares; 3.68%; Inflection Point): The company specializes in digital and film-based motion picture technologies, as well as large-format, two- dimensional (2D) and three-dimensional (3D) film presentations. The stock moved higher this week after management delivered better-than-expected quarterly results Thursday. Imax once again reported that it was profitable, and the company has continued to build out its theater base across the globe. Management continues to pay down debt, and we believe that the stock can continue to move up toward the low teens in the coming months as it becomes a true earnings growth story.

Kenneth Cole Productions (KCP:NYSE, $9.90; 400 shares; 3.36%; Inflection Point): Kenneth Cole designs and markets apparel and accessories for men, women and children through more than 7,500 department store and specialty store locations. The company announced mixed third-quarter results Tuesday evening. While the return to profitability was a positive surprise, sales trends remain weak, and management's fourth-quarter guidance was below previous expectations. Though inventory levels remain lean, Kenneth Cole is running out of costs to cut, and its forward visibility remains low. As a result, we wouldn't look to commit new funds to the stock unless it traded down toward $8.

King Pharmaceuticals (KG:NYSE, $11.21; 300 shares; 2.85%; Inflection Point): King Pharmaceuticals develops, manufactures, markets and sells branded prescription and animal health products worldwide. The stock gained 10% for the week following an excellent third-quarter earnings report on Thursday. The company saw better sales for its new Embeda pain medication and in its animal health division while also realizing more cost cuts during the quarter. Even though King continues to face some delays from the Food and Drug Administration (FDA) regarding the rest of its clinical pipeline, we continue to find the stock attractive to hold at current levels.

Mylan (MYL:Nasdaq, $17.47; 400 shares; 5.92%; Inflection Point): Mylan manufactures and develops generic pharmaceuticals with a focus on cardiovascular, central nervous system, dermatology, gastrointestinal, endocrine and metabolic, and renal and genitourinary products. The stock traded 7% higher this week, touching a fresh two-year high on Thursday. We recently took some profits off the table, but with 100 potential Mylan products pending FDA approval, we continue to believe that the stock can trade up toward $20 over the coming months.

TriQuint Semiconductor (TQNT:Nasdaq, $5.69; 800 shares; 3.86%; Inflection Point): TriQuint produces integrated circuits for a wide range of industries, including wireless handsets and communications networks. We're encouraged by the action in the stock this week, which may have bottomed out for the time being. Even so, we'd be prepared to purchase another 200 shares if TriQuint fell closer to $5 in the near term.

THREES

McDermott (MDR:NYSE, $23.89; 100 shares; 2.02%; Inflection Point): McDermott is an infrastructure company that operates in three segments: Offshore Oil and Gas, Government Operations and Power Generation. The company is scheduled to post third-quarter results after the close of trading Monday, with a conference call planned for the following morning. While we continue to see largely mixed results from the other infrastructure names this quarter, we believe that McDermott's exposure to the energy industry will help the company to outperform in the near term.

Regards,

David Peltier & the TSC Research Team

David welcomes your questions on Stocks Under $10. Please email David with your questions at stocksunderten@thestreet.com. However, please remember that Stocks Under $10 is not intended to provide personalized investment advice. Do not email David seeking personalized investment advice, which he cannot provide.