There's a great deal of money to be made in these markets, although you've got to protect yourself by being more selective. In your research, identify some fundamental factors that will help companies weather this storm. One of the primary attributes I look for is cash, but cash alone in a company that is bleeding ink may ultimately be a losing proposition. Profitable companies (all else being equal) may have greater wherewithal to preserve current cash and perhaps generate more.

To that end, I recently screened all sectors but financials for small-cap stocks with the following attributes:

• Market caps between $500 million and $2 billion;

• Current price-to-earnings ratios of less than 10;

• Profitable during trailing 12 months and latest fiscal year;

• Long -term debt-to-equity ratios of less than 30%;

• Cash greater than 20% of market cap;

• Price to book of less than 1; and

• Quick ratios greater than 1.

Just 13 companies met these rather stringent criteria.