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The Five Bucks Stop Here: A Look in the Bargain Bin

A friend of mine has begged me for at least a year for a column on a particular topic. Not an expose of all the thieving chief executives whose comeuppance has punished the lousy stocks he owned over the past few years. And not a piece explaining Dow 30 underfunded pension liabilities.

No, the piece my friend and probably thousands of others still want to read would end up with a headline like this: "Ten $5 Stocks to Buy Now!"

It's hard to believe, after all we've been through, that the life-affirming human penchant for getting rich on an investment of pennies still thrives. But since we're all about service here at SuperModels, this week I finally ran my screen for Fantastic Fivers with high hopes of finding a few cheapos worth the pocket change.

Here are the results. But I can't give them my strongest recommendation, because this is still a bear market -- and in bear markets, it pays to be a net seller of stocks, not a buyer.

Fabulous Fivers?
Company Name SS Rating Sector Avg. vol. Sept. 30 close
Cray (CRAY) 9 Technology 263,900 $3.95
TriZetto Group (TZIX) 9 Technology 103,900 4.98
Cardinal Financial (CFNL) 9 Finance 23,600 4.16
ClearOne Communications (CLRO) 8 Technology 148,500 3.41
OrthoLogic (OLGC) 8 Health Care 96,800 3.87
Monterey Pasta (PSTA) 8 Consumer non-durables 51,200 4.65
Selectica (SLTC) 8 Technology 138,500 3.58
Trover Solutions (TROV) 8 Health Care 32,000 4.01
SM&A (WINS) 8 Consumer services 22,300 3.04

More Hedges on a Volatile Market

What I can recommend instead is a hedged portfolio made up of five to 10 top StockScouter long recommendations for October and five to 10 top StockScouter short recommendations. This strategy has worked extremely well over the past year and a half, yielding positive results in every month since its inception in July 2001. It's different from the hedge portfolio that I recommended in my Sept. 18 column , in that it is designed to be completely turned over every month, rather than once a year. And it's different from the long-only 10- and 50-stock StockScouter portfolios that I have proposed before, in that it is market-neutral.

I'll get to the new names in a moment, but first let's look at the results for the strategy in September. They were strong. Using the 10 high-volume StockScouter longs and 10 high-volume StockScouter shorts that were published in my Sept. 4 column , a hedged long/short portfolio of 20 stocks would have yielded a return of 9.8%, not including transaction costs. A 10-stock portfolio of the top five longs and top five shorts would have yielded an 8.3% return. In contrast, the S&P 500 fell 11% in the month.

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