$10 and $20 Stocks That Can Make You 20%

Editor's note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com. He's also a regular contributor to RealMoney, TheStreet.com's subscription site. If you'd like to see all of Jon Markman's RealMoney commentary, click here for information about a free trial.

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If you have 10 bucks, a brokerage account, a little imagination and a lot of patience, you can beat the market next year. In fact, you could probably do it every year -- and maybe one day, Business Week will be calling you the next Warren Buffett.

The benchmark for great investors is 20% per year. You see that figure on display whenever a business publication gets excited about the investment returns of Buffett or someone like him. It's roughly the compounded annual return of his holding company, Berkshire Hathaway (BRK.A Quote), since the late 1950s. That's more than double the return of the S&P 500 in that span, including dividends.

When hedge fund guys chat about great returns over a long period, they talk about 25% to 30% annualized. And all of them recognize that it's the toughest benchmark in the profession.

A $10 Stock That Grows to $12

But if you think about it, there is a relatively easy way to get a 20% return year after year. It's not extremely easy, of course, but it is easier than you might think. Just find one $10 stock that will become a $12 stock in a year -- a little more than $12 if you plan to sell it after 12 months and need to pay taxes on the gain.

It would be a big risk to bet all of your money on a $10 stock. But what if you buy a small basket of $10 stocks and hold them for a year? Focus only on those with high MSN Money StockScouter scores, mix them up by sector, include some growth and some value and take at least one rich-yielding real estate investment trust. It shouldn't be impossible to find a few that would go to $14 or $16, a couple that would go to $12 or $13 and several that would end up flat or fall far enough to trip a 10% stop-loss order. Add them up, average them out and voila: You have a 20% return.

Yes, a $10 Stock Can Be Risky

Of course, $10 stocks are often small-caps on their way up or mid-caps on their way down, so they're pretty risky. You could move this exercise up a notch and find 10 $20 stocks that will rise, on average, to $24 instead. Let's try both now to see if we can earn 20% over the next year with a concept as simple as this.

For my list of stocks trading near $10, I queried the MSN database for stocks priced between $9.50 and $10.50 at the close on Nov. 26, market capitalizations greater than $50 million and average daily volume greater than 25,000 shares a day -- plus MSN StockScouter scores of 8 or greater.

Twenty stocks met those criteria, so next I sorted them by StockScouter factor scores, aiming to take the ones with the most As and Bs and the fewest Cs, Ds and Fs. My "$10 to $12 portfolio" is listed below.

Markman's $10 Portfolio These stocks have the potential to create handsome profits for you in the next year
Company	Size	Style	Industry	MSN StockScouter Rating	Nov. 26 Close
Cornerstone Realty Income Trust (TCR:NYSE)	Small	Growth	REIT (residential)	10	$10.00
Alliance Imaging (AIQ:NYSE)	Small	Value	Health care facilities	9	$8.98
Siebel Systems (SEBL:Nasdaq)	Mid	Growth	Applications software	9	$10.05
Pioneer Drilling (PDC:NYSE)	Small	Growth	Oil & gas drilling	9	$9.90
Interwoven (IWOV:Nasdaq)	Small	Growth	Business Software	9	$9.85
PolyOne (POL:NYSE)	Small	Value	Synthetics	9	$9.36
Government Properties Trust (GPP:NYSE)	Small	Growth	REIT (residential)	8	$10.62
Liberty Media (L:NYSE)	Large	Growth	Cable TV	8	$10.61
CMS Energy (CMS:NYSE)	Mid	Value	Electric utility	8	$10.32
Cardinal Financial (CFNL:Nasdaq)	Small	Value	Southeast banks	8	$9.99
Source: MSN Money