Most investors are now fully aware of the risks in the equity markets. The credit crisis, rising inflation and slowing growth have brought pain to a range of stocks. After listening to over 100 large-cap conference calls during the past earnings season, I've heard only a handful predict a positive outlook on the U.S. economy over the next 12 months.

Negative investor sentiment can create even more havoc for small companies, as they are less diversified than large-caps and more levered to the U.S. economy. My Stocks Under $10 portfolio has proved challenging in this environment. But in these rough times, investors seem to make the crucial mistake of selling out of small-caps when history suggests that these times offer the best opportunities to invest.

Years ago, it was easy to dismiss a troika of stocks that were trading under $10:


(AAPL) - Get Report


Research In Motion


, and

U.S. Steel

(X) - Get Report


Market conditions were similar to the one we are currently experiencing, and there seemed to be little reason to hold these stocks. Today, these three stocks have made millionaires out of investors who ignored the short-term headwinds and focused on the long term, or where these companies would be three to five years from now.

I know that's difficult to say given the current macro picture and the fact that every time you tune into


, the words "Oil Crisis" are pasted on the top of the screen.

With that said, there are many small-caps -- notably in the under $10 space -- that have promising potential if you are willing to look past the short-term headwinds.

When small stocks move, they can move fast. The Russell 2000 -- a great proxy for small-cap stocks -- rose 44% in 1991, even as the U.S. economy remain mired in a slump. That's they key right there. Investors look ahead, and when they sense that the economy will start to rebuild in the next year or two, they pour into small cap stocks. When small-caps rebound, you may want to hang on for a bit. The Russell 2000 rose 16% in 1992 and 17% in 1993. Over those three years, that small-cap index more than doubled.

Now this doesn't mean sell all of your large-caps and safe investments and buy small-caps, but every portfolio should have a small allocation dedicated to these companies with the chance it could become the next Apple.

If you are interested in some of my ideas, check out a free trial of my Stocks Under $10 newsletter


In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research analyst at, where he works closely with Jim Cramer and writes Stocks Under $10

newsletter. He also hosts "The Real Story" -- a daily podcast on on which he reviews the latest headlines and offers stock-picking advice. He is a regular guest on FoxBusiness News and previously was the editor of The FXC Newsletter and portfolio manager for Greentree Financial. He appreciates your feedback;

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