As the market hems and haws, it’s time for investors to take a look at small-caps — that’s why today, we’ve put together a list of the five small-cap stocks that are poised for gains right now…

Why small-caps? For starters, small-cap stocks historically lead the market out of recession, and in 2009 they’ve been performing in a big way. Year-to-date, the small-cap Russell 2000 Growth Index has gained 14.54% versus an S&P 500 that’s only returned 4.71% — much of that from last week’s rally.

The stocks on our list all have growing earnings, are undervalued by investors, and are in good enough financial shape to weather any economic speed bumps that come our way.

And don’t forget, it’s earnings season right now — that means that scores of antsy investors are waiting to snatch up diamonds in the stock market rough… Getting in now could mean having an edge on the competition.

Here’s our list…

First up is Del Monte Foods  (NYSE: DLM). This California-based company produces and distributes consumer food and pet products in the United States. And while the stock fell hard last October, it bounced back even harder, gaining 23% in the months that followed.

Much of that recent performance has been thanks to stellar earnings growth. Del Monte has increased its quarterly income by 42% over the course of the last year, signaling to investors that while consumer demand was weak in late 2008, Del Monte’s ability to build its customer base isn’t.

With Q1 2010 earnings scheduled for September 3, expect investors to be watching this company intently.

Tesoro (NYSE: TSO) is an independent petroleum refiner and retailer that operates seven refineries and more than 900 gas stations in 15 states. In total, the company transports 380,000 barrels of oil through its pipelines each day. Tesoro may seem like a surprising pick, given that it operates in the oil industry, where spot prices have fallen 57% since one year ago.

But downward pressure in oil prices has left independent producers like Tesoro oversold, and ready for a comeback. That valuation is clear from the stock’s multiple – TSO trades for just over 4 times earnings… that makes each dollar Tesoro makes a full 27 times cheaper for investors than the blue chips on the S&P 500.
The company is set to announce its second quarter 2009 results to the public on July 30.

Even though retail sales have taken a hit in this economic climate, there is one store chain that’s seeing their sales hold strong… Rent-A-Center (NASDAQ: RCII). The company, which is known for its low priced rent-to-own and installment sales stores of the same name, has been getting attention recently as Ben Bernanke and company warn that the global slowdown could last well into 2011.

At present, institutions like Barclays, Vanguard, and Bank of America own 95% of the company, and now’s as good a time as any for smaller investors to follow the big money.

While not a household name like Rent-A-Center, our next stellar small-cap should be. Fair Isaac Corporation (NYSE: FIC) provides analytical data management programs to businesses that help increase customer value, and reduce fraud and credit losses. In an age of constant belt-tightening, this is one expense many companies will be happy to shell out.

That’s a sentiment that’s shown itself on Fair Isaac’s income statement: the company reported year-over-year income growth of 32% last quarter. Analysts are hoping to see profits on $0.36 per share when the company reports earnings at 5:00pm today.

Last on our list is the Empire District Electric Company (NYSE: EDE), a public utility that provides power, natural gas, and water to 215,000 customers in Missouri, Kansas, Oklahoma and Arkansas. Besides an attractive 7.3% dividend yield, this recession-resistance stock has managed 56% income growth over the last year through modest customer acquisitions and rate increases.

Empire is set to announce its earnings on Friday.

Watch the Market, Maximize Your Gain Potential

This isn’t the first time I’ve talked about a specific stock this year… The last time I wrote to you about a specific investment play was mid-January… I was recommending shares of GP Strategies (NYSE: GPX) at $3.98. Today, that stock is trading at $7.09 for a 77% gain.

While there’s no guarantee that any of these five stocks will be able to repeat GPX’s performance, they’re among the best-positioned right now to pick up some impressive gains.

Last Friday, I gave you a glimpse at what to expect this week, and sure enough, it looks like the market’s having a tough time breaking through to another rally. But that doesn’t mean that stocks are down and out just yet. Watch the market closely this week… If the S&P 500 breaks out above 960, it could be a phenomenal time to buy some of the penny stocks I just told you about.

Cheers,
Jonas Elmerraji

July 22, 2009

Jonas Elmerraji

A big-four public accounting alum, Jonas Elmerraji brings his readers extensive expertise in small-cap stocks and broad market moves. Elmerraji’s interest in the market started with an investing course in elementary school – today he holds a degree in financial economics from UMBC and specializes in blending fundamental and technical analysis. Elmerraji has contributed to Forbes, TheStreet.com, and Investors Business Daily among others. He is managing editor of the Penny Momentum Trader, and a co-editor of Penny Stock Fortunes.

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