Stockpickr: How to Win a Stock-Picking Contest

If I were to enter one of the many stock-picking contests out there (including TheStreet.com's own contest in a few weeks), here's how I would try to game it.

Simply put: You want stocks that are most likely to make quick moves in short periods of time, because most contests don't last for more than a couple of months.

On Stockpickr, we set up a portfolio called How to Win a Stock-Picking Contest, which contains a list of possible stocks for the CNBC challenge that's currently running. I plan on updating this portfolio column many times to identify the latest fallen angels that make for good contest stocks; watch for those columns and more information about TheStreet.com's own stock-picking contest.

I would also suggest you take a look at the portfolio of top potential short squeezes for additional stock ideas.

There are three types of portfolios/stocks that are most likely to have 200%-plus moves in a short period of time, which is what you should be looking for when entering a stock-picking contest:

• Focused portfolios. That is, portfolios with only one to five stocks. Having even 10 stocks might be too diversified for this type of game.
• Beaten-down stocks that are well off of their highs. Any good news at all will send these stocks up 300%. This is why Enron, for instance, actually went up 300%-plus on 1 billion shares of volume the day it declared bankruptcy.
• Low-priced stocks, trading for less than $5. It's irrational that these stocks are more likely to go up 300%, but it's certainly possible.

Furthermore, I like stocks that can count master investors as holders of them. For instance, there is Cyberonics(CYBX Quote), which is held by Carl Icahn. The stock is 33% off of its highs because it remains unclear if its depression-treatment system will have any material effect on patients.

That said, if this stock should hear one piece of good news, it will get pushed up past $30. Icahn tends to bottom-fish, which explains his preference for stocks such as Cyberonics. Take a look at Icahn's portfolio on Stockpickr.

Another interesting stock to consider is Accredited Home Lenders(LEND Quote). Like all the subprime mortgage players, this stock has been obliterated of late. I can't really think of anything good to say about it. If what you want in a lender is credit quality, Accredited Home is not for you. Delinquencies at the company have increased, with the ratio of loss reserve to principal outstanding going from 1.4% to 1.7% last quarter. That number should probably be as high as 5%, but that would destroy Accredited Home's short-term earnings and affect its ability to obtain credit facilities.

Accredited Home Lenders (LEND)

That's an ugly chart. But you want ugly in a stock-picking contest, particularly a contest that lasts just two months.