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Five Stocks to Beat Market in 2010

Stocks in this article: SWHC HQS SONC PSMT STEC

By Jamie Dlugosch of Investor Place

In a very challenging year for stocks and stock-pickers, my list of Top 10 Stocks for 2009 gained 28.5% vs. the market's 23.5%. Beat the market by five percentage points each year, and you'll be significantly ahead of the game. Of course, that was then, and this is now.

The good news is, my Top Stock Picks for 2010 are up nearly 5% in a little more than a month of trading, easily beating the near 4% loss of the S&P 500. And there are more profits to be had.

According to my analysis, stocks will gain approximately 10% this year. Given the steepness of the yield curve and the emergence of a new business cycle, profit growth is all but guaranteed. The stocks on this year's list were designed to significantly outperform the market -- if the overall market gains 10%, these stocks in the aggregate should double or triple that.

The question now is: How do we beat the market this year?

The answer, put simply, is: By buying stocks that can grow quickly. That is, you want to invest in small-cap companies that can substantially increase earnings and trade for a reasonable multiple of price to earnings, i.e., they're undervalued.

Here are five such stocks.

Gun stocks were all the rage in 2009 as we all anticipated a change in power in Washington. With Democrats taking control of both the executive and legislative branches of the government, investors rightly predicted that gun sales would skyrocket, and they were right. Gun-makers saw sales and profits grow substantially, and their stock prices went up, too. Smith & Wesson (SWHC) more than tripled in value. Even so, shares remained relatively cheap given the growth potential.

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