Stocks Under $10 Weekly Summary

The major indices touched record highs again this week, led by positive economic data, solid earnings results and some large mergers-and-acquisitions announcements. Earnings season is more than half-way over, and large-cap stocks continue to outperform small-caps.

On the economic front, personal income rose, factory orders surged and first-quarter productivity jumped, all of which helped push stocks higher during the week. Also, on Friday, the Labor Department said the jobless rate rose to 4.5% from 4.4%, which was in line with expectations. Most economic data, outside of the housing industry, have been positive, and inflation has remained at bay, although it's still slightly above the Federal Reserve's 2% comfort zone.

On the equity side, we saw solid results from MasterCard (MA) , First Solar (FSLR) , Nortel Networks (NT) and Crocs (CROX) . Companies that fell short of estimates included Jones Soda (JSDA) , 21st Century Holding (TCHC) , Sprint (S) and General Motors (GM) .

Mergers and acquisitions continued to fuel the market this week as News Corp. (NWS) made a huge bid for Dow Jones DJ, and Reuters (RTRSY:Nasdaq ADR) said it had received a preliminary takeover approach. In addition, Cablevision (CVC) said it had agreed to be taken private, and the New York Post reported that Microsoft (MSFT) is in formal negotiations to acquire Yahoo! (YHOO) .

Overall, market conditions are favorable. Solid earnings are being complemented by strong economic reports, and inflation has been tame. However, many of the small-caps within the Russell 2000 have yet to report, and the index, although near an all-time high, has been underperforming large-caps.

As we mentioned in a past Alert, most of the larger stocks are driving the Russell 2000 higher, and many smaller names have been under pressure. This has opened up some opportunities for us in the under-$10 space and should lead to further initiations in the model portfolio. Along those lines, we expect to add a new name on Monday.

For the week, the Dow gained 1.1%, the Nasdaq added 0.6 %, the S&P 500 increased 0.8% and the Russell 2000 inched higher by 0.4%.

It was another busy week for the Stocks Under $10 model portfolio. On Monday, we kicked things off by initiating a 600-share position in Taser TASR, which we believe holds significant upside for investors at the current price based on a number of positive catalysts.

Denny's (DENN) and Move (MOVE) reported quarterly results Tuesday after the close. Shares of Denny's moved higher on the company's solid results, but Move saw its stock trade off because of signs that the weak housing market is taking its toll on the online real-estate play. We moved our rating on Move to a Two following the results, as management's commentary showed little indication of more-disciplined spending in the face of the steeper industry downturn. On Thursday, we pushed our rating on Grey Wolf GW back to a One after the company reported first-quarter results that beat consensus estimates.

Looking ahead, Online Resources (ORCC) and Home Solutions of America (HSOA) will report earnings results May 8. As always, we will have previews for both names early next week outlining what to expect.

Turning to our Watch List, we added Packeteer PKTR, Kosan Biosciences (KOSN) , Jamba (JMBA) and Actuate (ACTU) . We removed Coeur d'Alene Mines (CDE) , Harris Interactive (HPOL) and StarTek (SRT) .

We are also watching the following names for positive catalysts or attractive entry points: Bisys Group BSG, Diversa DVSA, Dynegy (DYN) , Energy Metals EMU, eSpeed ESPD, ExpressJet (XJT) , Idenix Pharmaceuticals (IDIX) , International Coal (ICO) , JetBlue (JBLU) Level 3 Communications (LVLT) , LSI Corp (LSI) , MRV Communications (MRVC) , Seattle Genetics (SGEN) , Service Corp. (SCI) and Vical (VICL) .

Now let's take a look at the portfolio and some of the moves we made this week.

One quick note: Ones are stocks we would buy now, while Twos are stocks we would buy only on a pullback from current levels, or stocks we are looking to sell. And 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 unknown names to the general public but can be hugely profitable investments, especially when they have catalysts to boost their share prices.

ONES

Denny's (DENN:Nasdaq, $4.76; 1,500 shares; 5.85% of the model portfolio; Inflection Point): The company owns and operates more than 1,500 restaurants primarily in the U.S., with about one-third of the family-style restaurants company-owned. Denny's shares trended higher this week after the company reported solid results Wednesday. Operating margins were lower than last year's comparable quarter, but this was expected, given the combination of weaker same-store sales and a hike in the minimum wage, as we mentioned in our preview. Also, management continued to strengthen the balance sheet, selling off six restaurants to franchisees in the quarter, which helped reduce net debt by $14.9 million. Total debt now stands at $440 million, which is 21% lower than it was at the beginning of 2006. Management continues to execute well, and Denny's improving balance sheet will likely be reflected in the stock price as debt levels continue to get reduced. Also, as the balance sheet strengthens, we could see some private-equity interest in the company.

DynCorp (DCP:NYSE, $14.91; 500 shares; 6.11%; Stealth Stock): DynCorp is an outsourcing and infrastructure company that provides services to the U.S. and foreign governments. These diverse services include training foreign police, conducting drug-eradication missions, providing peace-keeping support and humanitarian relief, and completing overseas infrastructure projects. Shares of DynCorp have been trading sideways as investors wait to hear the verdict on the $4.6 billion contract award that L-3 communications (LLL) is protesting. On March 29, the Government Accountability Office (GAO) said it backed L-3's protest, but a few weeks later the U.S. Army challenged the GAO decision and asked the agency to reverse it. This process has been holding back shares because of the risk that DynCorp could lose the contract. However, based on the Army's response, we believe that DynCorp will eventually get the contract and shares will move higher. We maintain our One rating and believe the stock has 25%-plus potential from the current price, despite its 50% surge since the position's initiation only six months ago.

Grey Wolf (GW:Amex, $7.61; 400 shares; 2.50%; Stealth Stock): The company drills for oil and natural gas in the continental U.S., primarily in the Ark-La-Tex, Gulf Coast, Mississippi-Alabama, southern Texas, Rocky Mountains and mid-continent markets. On Thursday, we pushed our rating on Grey Wolf back to a One after the company posted strong first-quarter results. The company achieved record quarterly EBITDA (earnings before interest, taxes, depreciation and amortization) and credited its term contract business -- or contracts that are signed for a specific period of time -- as the main driver. Management said that dayrates (the rates a drilling contractor receives per day for a drilling rig) declined 15% to 25% from six months ago as additional land rigs have flooded the market. However, the company believes that strong commodity prices for both oil and natural gas will likely fuel demand for land rigs later in the year, which could help stabilize and even push dayrates higher. With this type of environment, it's likely that Grey Wolf will extend its record operating performance for at least another two quarters, thus resulting in a higher share price.

Flow International (FLOW:Nasdaq, $12.00; 850 shares, 8.36%; Stealth Stock): Flow is the world leader in the development and manufacture of ultrahigh-pressure (UHP) waterjet technology, which can cut virtually any hard material, including metal, composites, stone, plastics, rubber and glass. Shares of Flow continued their upward momentum this week following last week's announcement by Flow's largest shareholder, Third Point, that it was interested in taking the company private. The hedge fund had previously expressed its disappointment with Flow's board for not heeding suggestions to sell the company after CEO Stephen Light stepped down in February, so this news of a potential offer by Third Point is not surprising. Based on our estimates, we believe the company will likely be sold above $13.50 a share, or at least 15% higher than the current price. The growth in Flow's waterjet business should continue to be strong as the commercial sector, both domestic and abroad, remains robust. We are maintaining our One rating, and will continue to update readers as more information becomes available.

Home Solutions of America (HSOA:Nasdaq, $4.69; 1,500 shares; 5.77%; Stealth Stock): The company offers recovery, restoration, rebuilding/remodeling and specialty interior services to owners of commercial and residential properties in the U.S. Shares continue to be under pressure as another unfavorable article about Home Solutions hit the newswires. As we mentioned in our most recent Webcast, several media reports that include misleading information have the shorts claiming victory. Two weeks ago, one report said that a company announcement of a $50 million contract awarded to a joint venture that includes its Fireline subsidiary was misleading. Then this week another report erroneously said that Home Solutions did not provide a timetable saying when its recent contract wins will take effect, and the story also understated the company's current backlog. All of this information can be found in Home Solution's relevant press releases, which can be located on Yahoo! Finance by searching under the company's ticker. Despite all the negativity, we are going against the crowd. We believe that the latest predictions for an active hurricane season could push shares higher, as was evident in the $14 share price two years ago when Hurricane Katrina hit New Orleans. In addition, we believe there is limited downside for the stock as the company just received $80 million in new contracts over the past two months. We maintain our One rating but suggest holding shares heading into the quarterly report, which is scheduled for May 8.

Hudson City Bancorp (HCBK:Nasdaq, $13.42; 500 shares; 5.50%; Stealth Stock): The company provides banking services to New York-area clients in Long Island, New Jersey and Staten Island through its 111 branches. Shares of Hudson have been trading sideways since the bank reported earnings April 24. Overall, the quarter was positive, especially considering that the inverted yield curve (which means that long-term interest rates have lower yields than short-term rates) continues to pressure margins. Hudson's key demographics are New York, New Jersey and Connecticut, three of the strongest housing markets in the country. Although foreclosures are rising in these states, Hudson has relatively no exposure to this part of the market because of its focus on lending to wealthier individuals. However, the weakness in the subprime loan industry and the continuing stream of negative data on the housing market are leading to selling pressure among most lenders. We believe Hudson offers value to shareholders at the current price and could become a takeover candidate for competitors looking to strengthen their loan portfolio. Also, longer term, the Federal Reserve will likely lower interest rates over the next six to nine months, which would be a positive for the industry and Hudson. We believe shares have a favorable risk/reward at the current price.

Online Resources (ORCC:Nasdaq, $11.41; 700 shares; 6.55%; Stealth Stock): The company is a payment-services firm that enables small and midsized financial institutions to offer online banking services to their clients. Online Resources is in an advantageous position, having direct relationships with both banking customers and bill-payment networks. On Thursday, research firm America's Growth Capital initiated coverage on Online Resources, saying that shares currently have an intrinsic value of $11.48. The report highlighted a number of growth opportunities for the company, including higher adoption rates for electronic payments and a product pipeline that includes multifactor authentication, expedited e-payments, online collections, PIN-less debits and mobile e-banking. We didn't see anything particularly new for investors to consider, but we have a slightly more positive take on the upside potential for shares of Online Resources than the analysts at America's Growth Capital. We believe that concerns over the growth rate in the bill-payment industry have kept the risk/reward favorable for purchases of this name.

Sun Microsystems (SUNW:Nasdaq, $5.24; 1,200 shares; 5.16%; Inflection Point): The company offers network-computing solutions, including servers, storage, software and services worldwide. Shares of Sun have stabilized above the $5 level following last week's earnings miss and lower guidance. As we mentioned in past Alerts, the weak guidance and the fact that Kohlberg Kravis Roberts -- one of the oldest and most experienced private-equity firms -- would invest $700 million into this company without foreseeing this short-term correction caught us by surprise. We still believe Sun's restructuring initiatives will continue to turn around the company, and with so much negative sentiment now surrounding the stock, anything positive -- such as an announcement of a buyback -- could send shares higher. So we are maintaining our One rating and may look to add additional shares at these lower prices as our long-term thesis remains intact.

Taser International (TASR: Nasdaq, $9.53; 600 shares; 4.69%; Stealth Stock): The company sells electronic control devices for use predominantly by law enforcement, military and security personnel, as well as for personal protection. We initiated a 600-share position in Taser on Monday based on the company's potential for growth. Taser has been doing a good job expanding capacity to account for the likelihood of huge orders internationally. However, last quarter, the company's margins were under pressure because of its expansion plans, and we used the short-term setback as a buying opportunity. Taser is well-positioned to benefit from an increase in international orders and revenue from its new products. These include the Taser Cam, which is an audio-video recording device, and the C2 model stun gun for consumers. As we explained in our Alert, sales of these new products will hit the bottom line over the next few quarters. Taser also has solid fundamentals, with relatively no long-term debt and $16 million in cash. We believe shares offer 25%-plus upside potential from the current price.

TWOS

Arris (ARRS:Nasdaq, $15.54; 250 shares; 3.19%; Inflection Point): Arris is a leading provider of equipment that enables the delivery of data and voice services, such as Internet and voice-over-Internet protocol (VoIP). Shares of Arris got a shot in the arm this week after a CIBC upgrade of the stock Wednesday. The investment bank's report mentioned Arris' low short-term risk as capital expenditure trends remain favorable. We also saw this development in the latest spending budgets from Time Warner (TWX) and Comcast (CMCSA) -- Arris' two largest customers -- following their quarterly results. Although the short-term outlook is favorable, we are interested to see what Arris' long-term agenda is following the failure of its attempted acquisition of Tandberg TV. The company now has a cash position of $575 million, which it could use either to repurchase shares or buy out a company with an array of video-technology capabilities that would complement Arris' equipment offerings. Rivals could also be eyeing Arris as a takeover candidate. We believe any of these outcomes will benefit shareholders, thus the reason we continue to hold shares despite the 40% run-up in the position since its initiation. We would look to add to our position on a pullback.

Hollywood Media (HOLL:Nasdaq, $4.60; 1,300 shares; 4.90%; Stealth Stock): The company generates most of its revenue by selling online advertising -- alongside theater and movie tickets -- through its wholly owned subsidiary Hollywood.com and minority stake in MovieTickets.com. Hollywood's assets remain attractive. Last fall, the company sold its Baseline StudioSystems unit to the New York Times for $35 million. Similarly, Hollywood's 26% stake in MovieTickets.com could be sold at a nice premium, based on the price paid for its rival Fandango by Comcast last month. Hollywood's Broadway ticketing division is also compelling, with revenue growing 32% year over year last quarter alone. Based on these assets, we believe the company is worth more than the current price -- and this excludes its advertising division. These assets have garnered the attention of value investors, and Hollywood's share price has benefited. We believe shares are worth in excess of $5, but based on the recent run-up in price we would rather wait for a pullback before adding to our position.

Lawson Software (LWSN:Nasdaq, $9.00; 500 shares; 3.69%; Inflection Point): Lawson is a leading provider of enterprise resource planning (ERP) software that integrates data from different departments within a company and makes it accessible for quick analysis. The company has been a solid performer, and our thesis remains intact. Lawson's integration of Intentia has given it a global footprint, and sales are benefiting from the weak dollar. Financially, the company's balance sheet is very strong, with $270 million in cash and only $8 million in debt. In addition, during its April 9 conference call, Lawson announced significant contract wins in over larger rivals Oracle (ORCL) and SAP (SAP:NYSE ADR). Given these pluses, Lawson is firing on all cylinders, and we believe shares could hit the $10 level in the short tem. But because of the stock's 15% run-up in just two months, we would prefer to wait for a pullback before adding to our position.

Move (MOVE:Nasdaq, $4.39; 1,000 shares; 3.60%; Inflection Point): Move provides information and decision-support tools for consumers seeking home- and real estate-related information on the Internet. The company's Internet properties include Realtor.com, HomeBuilder.com, RentNet.com and Moving.com. On Wednesday, Move reported first-quarter break-even earnings on $71 million in revenue, which were well below consensus estimates for a 2-cent profit on $75 million in revenue. Although we had alerted readers that investors were likely expecting a significant miss, Move's conference call provided some disappointing commentary, with management saying that plans for spending on a number of underperforming initiatives would continue. Considering that the housing market is much worse than expected even a couple months ago, we would have preferred to hear that management is taking a closer look at its expenditures rather than continuing to spend in a weakening environment. We moved our rating to a Two because of Move's vulnerability to the sickly housing market, regardless of our view that shares are currently oversold. We plan to trim this position as the stock trades up to more reasonable levels.

Vasco Data Security International (VDSI:Nasdaq, $21.40; 300 shares; 5.26%; Stealth Stock): The company is a leading supplier of token- and software-based security products that enable secure online financial and other transactions. Vasco's technology has been in high demand as banks and other financial institutions are using authentication devices and secure Web-based applications to protect themselves and their consumers from identity theft. Last week, Vasco reported quarterly financial results that once again topped analysts' expectations, sending shares up 27% on the news. Although concerns over valuation have surfaced, the company's strong revenue, earnings and margin results have all provided reasons for the stock to trade at a high price-to-earnings multiple, currently around 30 times 2008 consensus estimates. With shares up more than 80% since the beginning of the year, we will likely look to take profits over the next few months as we find new names that offer better upside potential with less risk of a significant pullback.

Xoma (XOMA:Nasdaq, $3.33; 2,500 shares; 6.83%; Stealth Stock): Xoma, a biopharmaceutical company, researches and develops therapeutic antibody treatments for conditions ranging from psoriasis to cancer. The company boasts an attractive set of large-cap partners, including Genentech (DNA) , Schering-Plough (SGP) and Novartis (NVS:NYSE ADR), as well as a number of other companies with which it has research and/or licensing agreements. Shares of Xoma continue to be volatile despite the lack of significant news for investors. We moved our rating to a Two after shares surged past the $3.60 mark last week as we believe readers should be very cautious about purchasing the stock after its recent rally. We would likely move our rating back to a One if the shares drop back to $3.25 without any news to justify the decline. Our positive thesis for this position centers on the multiple catalysts that could help propel the stock over the next year, including additional research agreements and potentially favorable test results for its pipeline products.

Frank Curzio is a research associate at TheStreet.com.

TheStreet.com is a publisher and a registered investment adviser. TheStreet.com Stocks Under $10 contains the authors' own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You further understand that the Stocks Under $10 Investment Team will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in TheStreet.com Stocks Under $10 may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Past results are not necessarily indicative of futureperformance. Investing in the stocks chosen forTheStreet.com Stocks Under $10 model portfolio is riskyand speculative. The companies may have limited operatinghistories and little available public information, and thestocks they issue may be volatile and illiquid. Trading insuch securities can result in immediate and substantial losses of the capital invested. You should use only risk capital, and not capital required for other purposes, such as retirement savings, student loans, mortgages or education. As an editorial employee of TheStreet.com, Curzio is restricted from owning individual securities other than stock or options in TheStreet.com, Inc.

-----------------------------------------------------------Visit the TheStreet.com Stocks Under $10 site (available to subscribers ONLY) by clicking here: http://www.thestreet.com/k/su/index.html

To view TheStreet.com Stocks Under $10 portfolio on theWeb, click here:http://www.thestreet.com/k/su/portfolio.html

For customer service on your account please visit:https://secure2.thestreet.com/cap/selfserve/

-----------------------------------------------------------

(c) 2007 TheStreet.com, Inc., 14 Wall Street, 15th Floor,New York, NY 10005, Attention: Customer Service Department