2. TOP Ships ( TOPS) owns tanker and dry-bulk ships, which it rents on multi-year, fixed-rate contracts. The dry-bulk industry, considered an economic bellwether, was one of the hardest hit amid recession. And TOP's small stature and unfavorable financial position left it exposed. The company has a market value of roughly $31 million, making it a micro-cap stock, a volatile asset class. Its long-term contracts insulate it from pricing cyclicality and a recent move to outsource ship maintenance will boost profit margins in 2011 and beyond, according to Morningstar.

Morningstar used discrete scenario analysis to generate a fair value estimate of $2, consistent with a 111% return. It views $3 as a conceivable top threshold, implying a potential 213% return. Its worst case scenario entails further write-downs and a forced sale of vessels by the company's bondholders. It awards that scenario a 33% probability. Its $2 base includes lower average daily pricing over the next few years, but a stable operating margin in the 25% range due to lower expenses and cost controls. As debt falls, investors will become comfortable with the stock.

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