Closing the Book on This Basket

Editor's Note: This was originally published as an alert at 8:30 a.m. EST on Dec. 28 to subscribers of TheStreet.com's Stocks Under $10.

On Dec. 8, we put together a basket of five speculative stocks that we believed would rally into the end of the year on the back of pending catalysts, and strong scores in our Alpha Factor, a measure of a stock's potential to make big moves as those catalysts are realized. We want to provide you readers with one final update on the progress of this basket, which has generated a 13.7% return this month.

We have suggested closing out two positions -- Aphton (APHT) and E-Loan (EELN) -- for double-digit gains, and last Thursday we suggested selling half of the Stemcells (STEM) position for a 22.4% gain.

Monday, Stemcells rallied another 15% on news that the South Korean government will allow advanced embryonic stem-cell research. The stock closed at $3.99. We would use this strength to exit the position for a three-week gain of 34.8%.

Stem-cell stocks have been viewed with skepticism over the last 12 months because of President Bush's decision not to provide funding for research on human embryonic stem cells. But the passing of California's Proposition 71 alloted some $3 billion in funding for research in the state over the next 10 years and, coupled with early stage data that have revealed a promising future for the use of these programmable cells to treat currently incurable diseases like multiple sclerosis and Parkinson's, piqued our interest in the group and made for a profitable trade. (We continue to hold Geron (GERN) for the Stocks Under $10 model portfolio and believe its extensive patent portfolio gives it a significant advantage in the race to bring a treatment to market.)

The two laggards of the group, Tut Systems (TUTS) and OpenTV (OPTV)), have returned 1.3% and 0.8%, respectively. We are not ready to throw in the towel just yet though. We expect Tut Systems to benefit from a ramp in capital spending from the regional Bell operating companies (RBOCs) in 2005. We wouldn't be surprised to hear of some contract wins in the coming months and we believe the stock will trade to $5 a share on good news.

We also would hang on to Stocks Under $10 portfolio member OpenTV. The stock has made a nice move over the last six months, gaining 81% thanks to its strong international business, but hasn't done much this month. We expect its overseas dominance of the interactive television market to spill into the U.S. market in 2005 as more consumers adopt higher-tier cable services.

Right now, Comcast (CMCSA) is running a small trial using Open's SpotOn advertising software that puts ads in front of the right demographic based on viewing tendencies. In addition, QVC shoppers in some markets can now make purchases using their remote controls thanks to OpenTV's technology. We believe there is 25% upside potential for this stock in 2005.

P.S. Remember, stocks priced under $10 have the potential to move quickly. So, you might want to get our current recommendations now with a free trial to TheStreet.com Stocks Under $10.

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