Picking stocks for a two-month contest is an ugly business. As Jim Cramer states in

our video

, you might need as much as 20%-30% gains or more in the two-month period to win a stock-picking contest (like TheStreet.com's

Beat the Street

trading contest, which has a $100,000 grand prize).

So forget about otherwise quality companies like

Johnson & Johnson

(JNJ) - Get Report

or even

Berkshire Hathaway

(BRK.A) - Get Report

or

Microsoft

(MSFT) - Get Report

.

Focus on ugly. We're going to the gutter here and turning over some rocks and see what we can come up with. Here are some basic rules to live by:

  • Don't diversify. Diversification is fine if you're my grandma and you need steady income for an IRA. But you aren't. You're a cold-hearted killer trying to win a two-month contest against 200,000 other killers. One to three stocks. Five max. That's it. Don't go crazy and don't fall in love.
  • Be prepared to lose 50% or more. The only way to gain 100% is to risk losing 100%. That's the facts. We're all about buying volatility here, and the most volatile stocks are the ones that are careening down.

Every two to three days, I'm going to update a portfolio of

Beat the Street Watchlist Stocks

: stocks that I'm looking at that I think have the potential to move fast to the upside. I'm doing this even though I know I'm going to be heavily embarrassed and ashamed of some of the returns on some of these stocks but, again, this is the only way to play it.

Then, you should check back daily on these portfolios to find suitable candidates:

Always check the

biggest % losers from the day before.

They can snap back hard:

When you check this list on Stockpickr, you can see which stocks are owned by the quality hedge funds and mutual funds. Pay attention to those. They will be buying at the lower prices so you should be also.

Ditto for the

52-week low list

. You must check the above two lists every day if you hope to find volatile stocks.

Stocks Rising on Unusual Volume.

These are stocks of potential breakouts.

Stockpickr's System Trades of the Day

: These are trades triggering that day in various backtested trading systems we've developed:

Stocks with unusual options activity the day before.

Perhaps someone knows something?

Latest Activist Situations

: Tthese are beaten-down stocks in which hedge funds are accumulating and demanding change. Believe me, these hedge funds piggyback each other. And once they start rocking the boat, things happen quickly. This should be on the must-view list.

Warren Buffett's portfolio.

It can't be bad to mimic the master. Buy any stocks that have fallen from grace. He's buying so snapback potential exists.

And get some ideas on the

Beat the Street forum

if you have any questions, ideas, or want to share thoughts on stocks with the rest of the community.

Here are some stocks I like from the recent Beat the Street Contest stocks portfolio I set up. Again, I might be embarrassed with some of these but I don't care.

Watchmaker

Movado

(MOV) - Get Report

said Thursday it expects 2008 earnings to fall 8% because of higher tax rates, sending shares tumbling on Thursday. Earnings are expected to come in at $1.72 per share instead of the $1.74 per share that analysts expected. So the stock is down 16%. Meanwhile, they trade at 10 times cash flows, are well positioned in the luxury space, have a great balance sheet and could be an acquisitions candidate. This is a case where the stock has sold off too much.

CDC

( CHINA) reaffimed guidance and the stock fell 10%. Meanwhile, they have a forward P/E of 12. Everyone in the U.S. is nervous about China stocks, but the Shanghai market is back at all-time highs, leaving the U.S./Chinese stocks in the dust. Analysts are still expecting EPS to come in at 53 cents for 2007 and 70 cents for 2008, up from 29 cents in 2006.

Global Payments

(GPN) - Get Report

lowered its revenue forecast from $1.06 billion to $1.05 billion and lowered its EPS forecast to $1.75 from $1.84. Wall Street is punishing it by sending shares down 13%. Last year, EPS was $1.54 so the company is still experiencing double-digit growth.

With $250 million net cash in the bank, the electronic payment-processing company trades at just 10 times trailing cash flows and probably even less on forward cash flows. This company will get upgraded this week when people realize how cheap it is. The Columbia Acorn Fund, one of the best value funds out there with a 17% average annual five-year return, owns the stock. Here are the holdings of the

Columbia Acorn Fund

.

And here is the rest of my

current watch list

, which also includes names like

Sirius

and

Progenics Pharma

. Please write on the

Beat the Street forum

if you have any questions, ideas, or what thoughts to share on stocks with the rest of the community. Good luck.

At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of

Trade Like a Hedge Fund

and

Trade Like Warren Buffett

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;

click here

to send him an email.

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