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4 Small-Cap Stocks With More Room to Grow

By Paul Rolfes

NEW YORK ( TheStreet) -- Just like most of the rest of the stock market, September was a surprisingly strong month for small caps. And October started out with a bang, but ended in a whimper.

Together, however, it was an impressive two-month rise in stocks with market capitalizations under $2 billion, as the Russell 2000 index of smaller stocks rose 12.3% in September, and a smaller but respectable 4.1% last month. By comparison, the S&P 500 Index was up nearly 9% in September and gained 3.7% in October -- which still was its best percentage return for that month since 2003.

Still, as traders finished out the month on Oct. 29, which marked the 81st anniversary of the Crash of 1929, called "Black Tuesday," they're looking ahead to what the midterm elections might bring and what Federal Reserve Chairman Ben Bernanke might have up his sleeve to try to kick-start a stagnant economy in the waning months of 2010.

With that in mind, here is a look some of the best-performing small-caps in October.

ZAGG (ZAGG - Get Report)

Technology lifted the Nasdaq Index, and that trend carried over to small caps as well. One of the better performers was ZAGG, which rose 73% in October. The Salt Lake City company makes protective gear (screen shields and cases) plus other accessories for gadgets, primarily for Apple's (AAPL) iPod, iPhone and iPad products. ZAGG's stock reflects these products' popularity, with its share price nearly doubling this year.

Some wonder if its reliance on Apple's success will come back to haunt it, but I don't think the growth spurt is over for ZAGG's business -- or its stock.

Rumors are rampant that Verizon (VZ) Wireless will start selling the iPhone sometime early in 2011, which promises to give ZAGG millions more potential customers. Apple is also expected to come out with a second-generation iPad, which could further generate buzz and send business ZAGG's way. Apple has also been cracking down on unauthorized third-party accessory companies, which have undercut ZAGG, so more customers will turn to ZAGG and others that wear the "made for" iPad and iPhone seal of approval.

Motricity (MOTR)

Motricity turned in the best monthly return among the Russell 2000 membership, popping nearly 83% higher. In the final week of October, the provider of mobile Internet services that only went public in June was catching a lot of Web chatter and attention from Jim Cramer on CNBC. On Oct. 25, shares jumped 14%, and it closed out the month with a 12% gain. The IPO was priced at $10 to $11, but traded around $8 the first day. The stock is currently trading for twice the offering price -- mostly on gains since mid-October and could continue higher as demand for mobile Internet services continues to increase.
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