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10 Small-Cap Stocks Poised to Rise, History Shows (Update2)


(Story updated to add that Fuel Systems Solutions' 2012 revenue outlook includes strong international growth in the second half of this year.)

BOSTON ( TheStreet) -- Small-cap stocks are in for a double-digit ride over the next six months, if previous bear-market recoveries hold true to form.

S&P Capital IQ's chief equity strategist, Sam Stovall, said in a research note Monday that benchmark small-cap indices, the Russell 2000 and S&P Small-Cap 600, have gained an average of 15%, 30% and 47% in the first three-, six- and 12-month periods following the eight recoveries after big corrections or mild bear markets since 1949.

"And this time around, the outperformance is again quite similar," he said. The S&P Small Cap 600 gained 25% in the first three months of this recovery and is up 35% since early October.

So if the Small Cap 600 "performs as it has in the past, it has another 12 percentage points to go in the coming six months," according to Stovall's research, which he presents with the caveat that past performance is no guarantee of future performance.

Given that backdrop, the index will have risen 47% in the 12 months to early October 2012 from its early October bottom last year.

In contrast, the large-cap benchmark, the S&P 500 , rose 17% in the first three months since the markets' October 2011 trough, and is up 25% from that now, which is also close to its historic norm in such recovery situations, Stovall reported. If it continues on its historical pace, it will gain 32% in the 12 months since the bottom.

Stovall cautions that that there is likely a correction or two in the interim, but adds that investors should forget about trying to time the market, since "more times than not, the 12-month advance was still higher than the corresponding six-month gain."

So, on the premise that investors should be able to ride several of these stocks through October to at least low double-digit increases, I screened Morningstar's database to find growth companies with financial fundamentals grades of "C" or better (as graded by Morningstar), with at least $330 million in market value, and that have returns of at least 40% over the past three months.

Here are the top 10 stocks, listed in inverse order of their share-price return over the past three months:

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