Stocks Under $10 Weekly Summary

After a sharp 2.8% gain on Monday, our model portfolio's benchmark, the Russell 2000 index, fell for four straight days into Friday's options expiration, ending the week fractionally lower. Once again, investors were faced with the dilemma of whether or not to start buying on the second straight day of stock declines.

It feels as though every investor is waiting for the big one: a market pullback of 10% or more. But we haven't seen one of those for several months, and anyone holding true to that strategy would be dramatically underperforming the broader stock market averages for the year.

This is why we started to put some cash to work in TriQuint Semiconductor (TQNT:Nasdaq) on Friday while taking our rating on the name back up to a One. Still, we don't want to commit fully just yet.

Other One-rated names in the model portfolio, such as Martha Stewart Living Omnimedia (MSO:NYSE), Stereotaxis (STXS:Nasdaq) and Zix (ZIXI:Nasdaq) are also approaching levels at which we'd consider adding to our positions on the next leg lower in the market.

Additionally, on Wednesday we alerted readers to four names that have intriguing prospects in our initial research: Abraxas Petroleum (AXAS:Nasdaq), BioForm Medical (BFRM:Nasdaq), DSP Group (DSPG:Nasdaq) and Vantage Drilling (VTG:Amex). We continue to do more homework on these companies as we search for potential new names in the model portfolio.

Looking forward to next week, volatility could drop as trading is shortened by the Thanksgiving holiday. That said, it will be a busy week for economic data, which could influence the traders remaining at their turrets, starting with the October existing-home sales report on Monday.

The following day, we'll get the first revision of the third-quarter gross domestic product (GDP) reading, as well as the minutes of the Nov. 4 Federal Open Market Committee (FOMC) meeting. The furious pace of reports won't let up Wednesday, which will see the release of the October durable-goods and new-home sales reports, along with the weekly jobless claims.

As a reminder, the stock market is open for a half-day of trading next Friday. We will be sending out the Weekly Summary as usual, shortly after the close.

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, $4.10, 1,000 shares, 3.51% of the model portfolio, Stealth Stock): The company produces software that allows users to develop and optimize e- commerce Web sites. Shares pulled back on little news this week. Art Technology remains attractive to purchase under $4, as the company continues to benefit from a rebound in customer demand.

Cott (COT:NYSE, $8.38, 600 shares, 4.30%, 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 was hit with some profit-taking this week, losing 7%. We'd consider buying more shares if they start trading below $8 because the company carries a lot of operating and financial momentum heading into the new year.

Diamond Management & Technology (DTPI:Nasdaq, $6.82, 700 shares, 4.09%, Stealth Stock): The company provides technology-consulting services to businesses in a variety of industries. This is another name that was hit with profit-taking this week, but Diamond Management continues to benefit from a recovery for its consulting services both domestically and in the U.K. Add in its juicy 4.1% dividend yield and the stock remains attractively valued at current levels.

Kopin (KOPN:Nasdaq, $4.66; 800 shares; 3.19%; 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 moved 6% higher on the week, making it the best performer in the model portfolio. We believe that it's important for shares to make a sustainable move over $5, which would help place the stock on the radar screens of more institutional investors.

Martha Stewart Living Omnimedia (MSO:NYSE, $4.93; 1,000 shares; 4.22%; 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. Shares trended lower along with the overall market this week. Despite the pullback in the stock since we first bought it, we believe the company will show a sharp recovery in 2010. That's because the company's magazine advertising trends appear to be bottoming out and Martha Stewart has plans to launch several new licensing deals with major retailers in 2010. Therefore, the shares remain attractive to purchase at current levels.

Metalico (MEA:Amex, $4.09; 750 shares; 2.63%; Stealth Stock): Metalico recycles scrap metals, including steel, iron and aluminum. The company also manufactures lead products. Shares pushed fractionally higher this week on little news. We maintain that the stock is attractive to purchase at current levels, as Metalico has improved its balance sheet in recent quarters and stands to benefit from rising scrap metal prices.

Stereotaxis (STXS:Nasdaq, $3.83; 1,200 shares; 3.93%; 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. Despite a bullish mention in "Business Week" on Friday, Stereotaxis shares fell 7% this week. With that in mind, we will consider adding another 200 shares to our model portfolio position on a pullback. The company continues to see demand for its Niobe Systems, despite general fears about hospital spending. As recurring revenue builds each quarter, Stereotaxis continues its move toward profitability.

TriQuint Semiconductor (TQNT:Nasdaq, $5.42; 1,000 shares; 4.64%; Inflection Point): TriQuint produces integrated circuits for a wide range of industries, including wireless handsets and communications networks. We upgraded the stock back up to a One on Friday and purchased 200 shares for the model portfolio. TriQuint was hit this week, after several semiconductor stocks were downgraded Thursday at Bank of America/Merrill Lynch. That said, we maintain that the company is positioned well to see a rebound in handset chip sales during the fourth quarter. As management regains the confidence of investors, the stock could certainly trade back up toward $7-$8 a share.

Vivus (VVUS:Nasdaq, $8.42; 350 shares; 2.52%; Game Breaker): Vivus is a biotech company that is developing a product for the treatment of obesity and diabetes. The company also has a line of existing and potential treatments for erectile dysfunction (ED). The stock gave back some of its earlier gains by Friday, but still ended the week 9% higher. That's because Vivus announced strong phase III data for its erectile dysfunction drug Avanafil on Wednesday. The company will run another three trials for the product, which could be on the market as early as 2012. Even so, the competition is heavy in the ED market, and we continue to believe that Vivus' obesity drug Qnexa has far more upside potential. In the meantime, we would look to buy another 150 shares on a pullback toward our original purchase price.

Wendy's/Arby's (WEN:NYSE, $4.11; 900 shares, 3.17%, 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. As a reminder, our model portfolio position will qualify for Wendy's/Arby's next 1.5-cent quarterly dividend (1.5% yield) at the close of trading on Wednesday. In the meantime, the stock remains attractively valued, with same- store sales poised to turn positive at the Wendy's chain.

Zix (ZIXI:Nasdaq), $1.71; 3,000 shares; 4.39%; 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. The stock price is approaching its recent lows, and we would look to buy another 500 shares for the model portfolio on further weakness. That's because the company is likely to announce the sale or closure of its e- prescribing business by the end of the year. This strategy should unlock shareholder value as it will show investors just how profitable the company's core e-mail encryption business actually is.

TWOS

Del Monte (DLM:NYSE, $10.73; 600 shares; 5.51%; Inflection Point): The company produces and markets a variety of food and pet products for the retail sector. The stock continues to mark time ahead of its quarterly report on Dec. 3. Readers should consider committing new money to the shares on a pullback toward $10, as we expect Del Monte to deliver another solid set of earnings numbers, which will likely boost the share price higher.

Epiq Systems (EPIQ:Nasdaq, $12.67; 300 shares; 3.25%; Stealth Stock): The company provides products and services for some of the world's largest law firms that specialize in bankruptcies and class-action lawsuits. Epiq gave an upbeat presentation at a Wells Fargo technology investment conference this week. The company suggested that business has picked up at its troubled e-discovery division so far this quarter. Even so, we're more likely to sell another 100 shares if the stock bounces higher in the near term.

Imax (IMAX:Nasdaq, $10.48; 400 shares; 3.59%; 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. Even though Imax had several positive news items out, the stock fell about 6% this week. First, the company continues to see strong box office traffic from "Disney's A Christmas Carol." Additionally, on Tuesday, Imax announced a new four-year $75 million credit line with Wachovia Capital Finance, which will allow management to redeem its remaining 9.625% notes that were set to mature in 2010. However, we believe the market is focusing on the 10b5-1 plans filed by the company's Chairman and CEO. That said, the two executives will still retain the majority of their holdings and the sales should be spread out so that the market can absorb the extra supply rather quickly. With that in mind, we'd look to start buying shares of Imax again if the stock falls toward $9 in the near term.

Kenneth Cole Productions (KCP:NYSE, $9.44; 400 shares; 3.23%; 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 shares were once again volatile this week, despite ending the week essentially flat. The company gave cautious guidance for the fourth quarter, but the stock should rally back above $10, especially if management once again exceeds profit expectations.

King Pharmaceuticals (KG:NYSE, $11.80; 300 shares; 3.03%; Inflection Point): King Pharmaceuticals develops, manufactures, markets and sells branded prescription and animal health products worldwide. The stock broke out to new highs this week, though there was little company- specific news outside of some sizable buying in call options on King. Despite these speculative bets from investors, we maintain that the company lacks significant catalysts until mid-2010. With that in mind, we'd consider taking some profits off the table, if the stock continues moving up toward $13.

Mylan (MYL:Nasdaq, $17.55; 400 shares; 6.01%; 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 briefly moved through $18.10 on Monday, but pulled back by the end of the week. We continue to believe that Mylan is well positioned to bring dozens of new products to market next year. However, prudence dictates that we take profits off the table by selling another 100 shares if the stock moves up near $19 in the coming months.

Yamana Gold (AUY:NYSE, $13.22; 400 shares; 4.53%; 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 4% for the week, as spot gold prices continued to push toward new highs. Although we recently took some profits off the table with Yamana, we continue to believe the shares could hit the high teens within the coming months.

THREES

McDermott (MDR:NYSE, $21.59; 100 shares; 1.85%; Inflection Point): McDermott is an infrastructure company that operates in three segments: Offshore Oil and Gas, Government Operations and Power Generation. The stock traded back down toward its recent lows this week on little news. We fear that we may have overstayed our welcome with the tag ends of this position, and would look to sell our final 100 shares into the next rally.

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.