Stocks Under $10 Weekly Summary

Trading volume was low this week, but the major market averages were extremely volatile. After the week began with two days of sharp losses, stocks rallied on Friday to leave the week with just a small gain.

We bought some shares of Omnova Solutions (OMN) and Health Management Associates (HMA) on pullbacks this week. In addition, we sold our entire holding in Diamond Management and Technology (DTPI) from the model portfolio on Tuesday for an average gain of 92%, as the company agreed to be purchased by PricewaterhouseCoopers for $12.50 per share in cash.

The fortunes of the market bounced around with each successive piece of economic data this week, which continued to paint a mixed picture for future growth. The July home sales data were especially weak, as was the July durable goods orders number that posted on Wednesday.

On the other hand, Thursday's initial jobless claims report and Friday's revision of the second-quarter gross domestic product (GDP) came in ahead of the consensus estimates. For next week, we expect more market volatility on low trading volume, as it will be another busy period for economic reports.

On Tuesday, the Conference Board is scheduled to release its reading of July consumer confidence. Also on Tuesday, the minutes from the latest meeting of the Federal Open Market Committee (FOMC) are due. Thursday will bring July pending home sales, along with the weekly jobless claims figure. Last, before investors can start the Labor Day holiday, Friday's employment number is expected to show the loss of another 100,000 nonfarm payrolls.

We have more cash on hand following the Diamond Management sale and we will be looking for opportunities to replace the company in the model portfolio by adding a new name.

As a reminder:

-- A Game Breaker is going to change the landscape of an industry, as Intel, Microsoft and Wal-Mart did in their sectors. Investors can make big money in these stocks by getting in before the crowd.

-- Inflection-Point stocks have a broken business model that's on the mend, but has yet to be recognized by the market. Investors who recognize a turnaround early can pocket strong returns.

-- Stealth Stocks are often names unknown to the general public, but which can be hugely profitable investments, especially when they have catalysts to boost their share prices.

Also, Ones are stocks that we would buy at their current quotes, Twos are stocks that we would buy on a pullback and Threes are names that we will sell into strength.

ONES

Art Technology (ARTG:Nasdaq; $3.47; 1,650 shares; 4.92% of the model portfolio; Stealth Stock): The company produces software that allows users to develop and optimize e-commerce Web sites. The stock bounced back 13% over the past three sessions, and may have bottomed out for the time being. Art Technology is seeing strong customer demand across the globe and has a pristine balance sheet.

Cott (COT:NYSE; $6.96; 850 shares; 5.09%; Stealth Stock): Cott produces and distributes soft drinks, noncarbonated beverages and bottled water, primarily focusing on private-label items for major retailers. Shares moved another 6% higher this week in a volatile market. The company's recent acquisition of Cliffstar should boost profits, and the stock remains inexpensive, trading at just 7x expected 2011 earnings.

Health Management (HMA:NYSE; $6.43; 900 shares; 4.98%; Inflection Point): Health Management operates more than 50 general care hospitals that are located primarily in the southern U.S. We bought an additional 150 shares on Thursday, as the stock fell 4% this week. Even though the health care sector remains out of favor, we believe the company remains on track to generate double-digit sales and profits growth both this year and in 2011. At current levels, the stock is valued at just 9x forward expected earnings.

Kopin (KOPN:Nasdaq; $2.85; 1,950 shares; 4.78%; Game Breaker): Kopin manufactures semiconductor wafers used in wireless and fiber-optic equipment. The company also makes small liquid crystal display (LCD) screens, which are used in a number of products, including consumer electronics and military night-vision gear. Kopin shares marked time this week on little news. Despite its multiple potential growth areas, the company remains under the radar and is undervalued, trading at less than 2x cash.

Lime Energy (LIME:Nasdaq; $3.33; 1,750 shares; 5.01%; Game Breaker): The company is an energy-efficiency consultant, serving commercial, utility and government customers with its lighting, ventilating and water systems. Lime Energy should continue to see growth in its growing utility consulting business and benefit from more stimulus-related spending in the second half of 2010. The stock held up relatively well this week and remains attractively valued at current levels.

Martha Stewart Living Omnimedia (MSO:NYSE; $4.64; 1,250 shares; 4.99%; Inflection Point): The company operates in the home goods segment, publishing magazines, producing broadcasts and licensing products to retailers. Martha Stewart shares were little changed this week. Despite economic fears, the company continues to see increased advertising demand. Continued growth in the merchandising division should also help margins.

OMNOVA Solutions (OMN:NYSE; $6.19; 600 shares; 3.19%; Stealth Stock): Omnova produces specialty chemicals for paper and textile makers. The company also makes vinyl- and paper-based wall coverings and laminates. We bought 150 shares on Tuesday as the stock fell more than 3% this week. Despite fears of slower economic growth, Omnova still enjoys pricing power and its shares are currently valued at just 6x expected fiscal 2011 (ending November) earnings.

ON Semiconductor (ONNN:Nasdaq; $6.41; 800 shares; 4.41%; Stealth Stock): The company makes analog, standard logic and discrete semiconductors for use in data and power management. The technology sector remains under pressure. Even so, ON Semiconductor has exposure to end-markets -- such as automotive and industrials -- that should continue to grow in the second half of 2010. As a result, the shares remain attractively valued at 7x expected full-year earnings.

Openwave Systems (OPWV:Nasdaq; $1.67; 3,000 shares; 4.31%; Stealth Stock): Openwave produces software that makes communications networks more efficient. The company recently released new products designed to help wireless networks meet increasing data demand. The stock gave back some of its recent gains this week. That said, we believe that Openwave has limited downside potential from its current levels, because the company should see higher orders for its new wireless network optimization products in the second half of the year.

Standard Motor Products (SMP:NYSE; $9.22; 500 shares; 3.96%; Inflection Point): Standard Motor makes after-market automotive parts for air conditioning systems and engines. Shares moved higher in a choppy market this week. The auto market continues to recovery from its recessionary lows, and the company has room to further expand margins. In the meantime, the stock sports a 2.2% dividend yield.

Stein Mart (SMRT:Nasdaq; $7.45; 500 shares; 3.20%; Inflection Point): Stein Mart is a discount retailer with 265 locations across 30 states. The stock added to its recent gains this week. Despite fears of another dip in consumer spending, the retailer is driving traffic back to its stores with a new merchandising strategy. The company has a pristine balance sheet, and we maintain that Stein Mart is attractively valued at less than 9x expected full-year earnings.

Stereotaxis (STXS:Nasdaq; $3.33; 1,850 shares; 5.30%; Game Breaker): The company's main product is the Niobe system, a remote-controlled cardiology instrument system that aids in the treatment of atrial fibrillation (AF) through the use of catheters. Stereotaxis shares continued to trend lower this week, but held the July lows. We continue to believe that some companies are still worth buying in the healthcare space, even if the sector remains out of favor. As a result, we would consider picking up another 250 shares on further weakness.

Vantage Drilling (VTG:Amex; $1.34; 4,000 shares; 4.61%; Inflection Point): The company is an offshore driller that contracts its rigs for the exploration of oil and natural gas. The stock held up relatively well this week, as Vantage's largest institutional investor increased its position in the company by more than 50%, according to a Securities and Exchange Commission (SEC) filing. We maintain that the company can double its earnings before interest, taxes, depreciation and amortization (EBITDA) in 2011 and that shares remain attractively valued at current levels.

Wendy's/Arby's (WEN:NYSE; $4.03; 900 shares, 3.12%; Inflection Point): The company operates more than 10,000 quick-service restaurant locations in the U.S. and more than 20 other countries under its two namesake brands, Wendy's and Arby's. Wendy's/Arby's shares held up relatively well this week, as competitor Burger King (BKC) announced mixed quarterly results. We continue to believe in the company's turnaround story and that the stock can move back up toward the mid-single digits in the coming quarters.

TWOS

Metalico (MEA:Amex; $3.31; 1,500 shares; 4.27%; Stealth Stock): Metalico recycles scrap metals, including steel, iron and aluminum. The company also manufactures lead products. The stock dropped about 5% this week, but scrap metal pricing is looking better for the third quarter. With Metalico down nearly 55% from its May highs, we would consider buying an additional 200 shares on a further selloff.

TriQuint Semiconductor (TQNT:Nasdaq; $7.10; 850 shares; 5.19%; Inflection Point): TriQuint produces integrated circuits for a wide range of industries, including wireless handsets and communications networks. The stock was little changed this week. That said, the company should continue to benefit from growth in smartphone demand. As a result, we would consider buying 100 shares of TriQuint under $6.

Yamana Gold (AUY:NYSE; $10.29; 500 shares; 4.42%; Inflection Point): Yamana is a gold and copper exploration company with seven operating mines and several ongoing development projects in Brazil, Argentina and Chile. Shares added to recent gains this week, despite the market volatility. The company remains a core holding in the model portfolio, as we expect management to post sequential growth for each of the next two quarters.

Zix (ZIXI:Nasdaq; $2.45; 2,500 shares; 5.27%; Stealth Stock): The company is a leading producer of email encryption software. Zix is in the process of closing its unprofitable e-prescribing division, which allows doctors to automatically send information to pharmacies. The stock ticked higher this week on little news. The company is carrying a lot of momentum into the second half of 2010, but we would still rather wait for a pullback before buying more shares for the model portfolio.

THREES

Del Monte Foods (DLM:NYSE; $13.12; 150 shares; 1.69%; Inflection Point): The company makes a variety of food and pet products for the retail sector. Del Monte shares kept pace with the broader market this week, ahead of Thursday's quarterly report. We'll provide readers with a full preview next week ahead of the numbers, but the stock remains attractively valued at 9x expected full-year earnings.

Mylan (MYL:Nasdaq; $17.34; 100 shares; 1.49%; Inflection Point): The company makes generic pharmaceuticals with a focus on cardiovascular, central nervous system, dermatology, gastrointestinal, endocrine and metabolic, and renal and genitourinary products. The stock pulled back this week along with the rest of the health care sector, but held its July lows. We continue to believe that the generic drug sector will post above-average growth over the coming quarters.

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