Stocks Under $10 Weekly Summary

[Wreck_IT]

Friday, June 15, 2007 4:59 PM EDT
Dear Subscriber to TheStreet.com Stocks Under $10,

By midweek, a slew of positive economic data sent the major indices
surging. This was a significant change in sentiment from last week,
when bears were pointing at a gloom-and- doom scenario based on the
rising 10-year Treasury and further slowing in the housing market.
On the economic front, strong retail sales, coupled with positive
readings from both the producer price and consumer price indices,
suggest that inflation is moderating while spending is trending
higher. This creates a Goldilocks economy -- not too hot, not too cold
-- indicating that the Federal Reserve will likely leave monetary
policy as is in the short term.

As for equities, we saw some mixed earnings results from the
investment banking sector this week. On the positive side, Lehman
Brothers (LEH:NYSE) and Goldman Sachs (GS:NYSE) beat estimates, while
Bear Stearns' (BSC:NYSE) results fell short of forecasts. Looking at
the details, it's apparent that trading, international business and
investment banking continue to be the main earnings drivers, but
domestic subprime mortgages remain a concern.

Overall, it seems that every time the stock market pulls back, it is
met with a quick upside bounce. While the recent economic news is
encouraging, it's important to note that it's only one month's worth
of data -- and the outlook could change quickly.

For example, it may be difficult to sustain the current spending
trends as oil and gasoline prices remain at historical highs. Also,
mortgage rates are rising, which will have a further negative impact
on the already- depressed U.S. housing market. Last, we are seeing
excessive buybacks from large corporations. Buybacks are generally
good for stocks, but excessive buybacks are an indication that
companies are spending less on projects and developments -- which in
turn is taking money out of the economy.

Looking at small-caps, the Russell 2000 index closed just shy of its
all-time high of 856. We were hoping to see a further pullback after
last week's decline as it would have created some good entry points
for stocks on our Watch List. We continue to be patient and expect to
add some new positions to the model portfolio over the next few weeks.

For the week, the Dow rose 1.6%, the Nasdaq gained 2.1%, the S&P 500
increased 1.7% and the Russell 2000 added 1.5%.

Turning to the model portfolio, we added 200 shares to our position in
Online Resources (ORCC:Nasdaq) Tuesday after a pullback, bringing the
total to 700. On Wednesday, we initiated a 1,300-share position in
Entrust (ENTU:Nasdaq) based on increasing demand for online security.

Then on Friday, we sold 200 shares of our 500-share position in
DynCorp (DCP:NYSE), and we sold 300 shares of our 800-share position
in Taser (TASR:Nasdaq). These two companies still offer investors a
favorable risk/reward over the long term; however, given the huge
run-ups in the share prices of both stocks, we decided to use the
opportunity to book some profits.

Turning to our Watch List, we added Gray Television (GTN:NYSE) and
PolyOne (POL:NYSE), and deleted Dynegy (DYN:NYSE) and Idenix
Pharmaceuticals (IDIX:Nasdaq).

We are also watching the following names for positive catalysts or
attractive entry points: Actuate (ACTU:Nasdaq), Atmel (ATML:Nasdaq),
Bisys Group (BSG:NYSE), Bruker BioSciences (BRKR:Nasdaq), Diversa
(DVSA:Nasdaq), eSpeed (ESPD:Nasdaq), International Coal (ICO:NYSE),
Jamba (JMBA:Nasdaq), KongZhong (KONG:Nasdaq), Kosan Biosciences
(KOSN:Nasdaq), Level 3 Communications (LVLT:Nasdaq), LSI Corp.
(LSI:NYSE), MRV Communications (MRVC:Nasdaq), Packeteer (PKTR:Nasdaq),
Stec (STEC:Nasdaq) and Vical (VICL:Nasdaq).

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

Entrust (ENTU:Nasdaq, $4.20: 1,300 shares, 4.20% of the model
portfolio; Stealth Stock): The company specializes in software
security and uses its solutions to protect users from identity theft
and fraud. We initiated a position in Entrust on Wednesday based on
the huge potential for continued growth in demand for online fraud
protection -- particularly in the commercial banking, health care and
government sectors. We have seen shares of Vasco Data Security
(VDSI:Nasdaq) -- another model portfolio holding -- surge as the
company continues to sign new clients each quarter, and Entrust may
not be far behind. As mentioned in our Alert, Entrust has solid
fundamentals to support its growth potential, and we believe shares
are least 20% undervalued at the current quote.

Flow International (FLOW:Nasdaq, $12.33; 800 shares, 7.59%; 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 traded lower this week on very little news.
About six weeks ago, Third Point -- Flow's largest shareholder --
suggested that the company put itself up for sale because the share
price did not reflect the full value of the company. Management
responded by saying that Flow offered shareholders more value by
continuing to execute its strategic plan. We believe that management
has only two quarters to prove to shareholders that a takeover is not
in shareholders' best interests. Flow's waterjet technology is being
adopted by numerous industries, and analysts estimate the company will
grow revenue in excess of 30% on an annualized basis. If either of the
next two quarters misses estimates, we expect Third Point to be more
aggressive in its approach to taking the company private. This creates
a favorable situation for investors with little downside risk..

Grey Wolf (GW:Amex, $8.27, 600 shares; 3.82%; 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 midcontinent markets. Grey Wolf is now
trading in the $8-a- share range -- up sharply over the past three
months as the drilling environment remains favorable. We pushed our
rating to a One on May 10 when the stock was trading at $7.43, and
continue to believe that shares have more upside. The company's
financials are solid, with more than $300 million in cash flow, and
shares are trading at just eight times expected 2007 earnings,
according to Capital IQ. In addition, Grey Wolf's solid asset base,
which includes a fleet of more than 115 drilling rigs, could
complement a larger competitor. We believe shares could see $9 in the
short term.

JetBlue (JBLU:Nasdaq, $10.51; 350 shares; 2.83%; Inflection Point):
The company is a low-cost passenger airline that primarily offers
point-to-point flights in the U.S. with high-quality customer service.
As we mentioned last week, JetBlue founder and former CEO David
Neeleman and billionaire investor George Soros have sold part of their
stakes in the airline. After the sales, Neeleman owns 4.6% of the
company, and Soros still owns more than 10%. Despite the insider
sales, we believe JetBlue will report a solid quarter and shares will
move higher in the short term. Jet fuel prices -- which move in tandem
with oil prices and are by far the company's largest expense -- always
seem to climb in late spring and then trend lower during the summer
months. Also, it's unlikely that the company will have to cancel 1,700
flights because of bad weather in the next few months -- which was the
chief catalyst behind the stock's fall from $17 early this year to its
current level. We maintain our One rating and believe shares have
15%-plus upside in the short term.

Lawson Software (LWSN:Nasdaq, $10.01; 500 shares; 3.85%; 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 is
currently our favorite name in the software sector, as it offers an
attractive alternative to larger competitors Oracle (ORCL:Nasdaq) and
SAP (SAP:NYSE ADR). On Wednesday, Lawson updated its fourth-quarter
guidance, raising its expected earnings range to between 5 cents and 7
cents, up from a previous range of 3 cents to 5 cents. Management also
increased its revenue guidance to a range of $201 million to $208
million, well ahead of current consensus revenue estimates of $193.6
million. Lawson indicated that sales of the company's System
Foundation product have been better than expected due to a recent
price increase. Our thesis for this position has focused on our
expectations for strong business spending on enterprise software, and
the updated guidance gives us no reason to backpedal on our bullish
stance. We believe shares remain attractive for purchase at the
current quote.

Online Resources (ORCC:Nasdaq, $11.35; 700 shares; 6.11%; 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 Tuesday we pushed our rating back up to a One and added
200 shares to our position, based on recent weakness in the stock.
Online Resources has shown more-stable growth in its bill-payment
business in 2007, and we believe the trend should continue for at
least the next six months. In addition, the company's significant
networks make it an attractive acquisition candidate for larger
companies looking to strengthen their own financial service networks.
We remain bullish on the company and believe shares are attractive
around $11 for long-term investors.

Sun Microsystems (SUNW:Nasdaq, $5.05; 1,600 shares; 6.22%; Inflection
Point): The company offers network-computing solutions, including
servers, storage, software and services worldwide. Sun continues to
try to find its footing after missing quarterly results on April 24.
Last week, we added 400 shares to our position based on our belief
that most of the bad news from last quarter's miss is already
reflected in Sun's stock price. Also, board director Michael Marks --
who is also a senior advisor for Kohlberg Kravis Roberts (KKR), which
earlier this year invested $700 million in Sun -- just purchased $1
million worth of Sun stock, suggesting that KKR may believe that
shares hit a bottom. We believe that Sun will achieve its 4% operating
profit goal for its fiscal fourth quarter and that the company's
restructuring efforts will continue to strengthen its balance sheet.
We are maintaining our One rating, and believe shares offer a
favorable risk/reward for investors at the current level.

ViaCell (VIAC:Nasdaq, $5.68; 1,000 shares; 4.37%; Inflection Point):
ViaCell provides services to parents who want to preserve their
newborns' umbilical cord blood to treat potential diseases later in
their life. The company also conducts research to develop therapeutic
uses for the stem cells derived from umbilical cord blood. In this
way, ViaCell has distanced itself from other biotech companies that
work with embryonic stem cells, which remain a contentious political
topic in the U.S. We are bullish on the company's umbilical cord blood
preservation program, which generates much of the revenue needed to
fund the company's research operations. With no treatments yet in
late-stage development, we believe there is significant room for
share-price appreciation as the company provides more insight into its
progress in finding applications for stem cells to treat various
conditions, including cancer and diabetes.

Xoma (XOMA:Nasdaq, $3.40; 2,500 shares; 6.54%; 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:NYSE), Schering-Plough (SGP:NYSE) and Novartis
(NVS:NYSE ADR), as well as a number of other companies with which it
has research and/or licensing agreements. Although news from the
company has been sparse over the past month, we anticipate a number of
catalysts for the stock over the next 12 months, including the
announcement of additional research deals and positive results from
studies of its many early-stage treatments. Of particular interest to
us is the potential for positive data regarding two of Xoma's
proprietary treatments: Neuprex, which enhances the activity of
antibiotics, and XOMA 052, which is an anti- inflammatory. We believe
shares are attractive for aggressive investors willing to accept the
risks of a currently unprofitable biotech company.

TWOS

Arris (ARRS:Nasdaq, $16.47; 250 shares; 3.17%; 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). The company has been one of the major beneficiaries
of the growth in spending at large cable companies -- like Comcast
(CMCSA:Nasdaq) and Time Warner (TWX:NYSE) -- which make up the bulk of
Arris' customer base. On Monday, investment bank Thomas Weisel issued
a report saying that EMTA (embedded multimedia terminal adapter)
shipments could be greater than expected in 2007 and 2008 based on a
number of factors, including customer churn at cable companies.
Analysts at Weisel raised their 2008 estimates on EMTA units shipped
by Arris to 21 million from 19 million. The increased estimates are
obviously a bullish sign for Arris, which continues to benefit from
equipment upgrades and the growing number of VoIP subscriptions at
cable companies. Despite our positive stance, we believe the
risk/reward profile for shares of Arris is not attractive enough to
suggest additional purchases at the current price.

Denny's (DENN:Nasdaq, $4.46; 1,500 shares; 5.15%; 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. We pushed our rating to a Two last week based on the
lack of short-term catalysts and a slowdown in consumer spending.
Denny's key regions of business are Florida and California, two areas
that have been hit hard by the recent housing slump, and we believe
this will eventually lead to tightened budgets among consumers in
these states. Management has done a great job reducing debt by selling
franchised-owned stores; however, even though the stock seems to have
modest downside risk at this level, we believe shares have little
upside potential over the next 12 months and will look to exit this
position on strength.

DynCorp (DCP:NYSE, $20.67; 300 shares; 4.77%; Stealth Stock): DynCorp
is an outsourcing and infrastructure company that provides services to
the U.S. and foreign governments. Shares are hovering around the $20
level following last week's positive results and outlook. We sold 200
shares Friday, taking an opportunity to lock in some profits in this
name. DynCorp's revenue guidance did not include the $4.6 billion
contract that is currently under protest by L-3 Communications
(LLL:NYSE), which is the reason behind the 25% jump in the share price
last week. The short-term outlook remains favorable as the company is
one of five bidding to get a piece of the $150 billion Army contract,
known as LOGCAP IV, to provide combat support services. Awards for
that contract are expected by the end of the summer. We are optimistic
that shares of DynCorp will continue to move higher in the short term,
but we moved the stock to a Two last week because of its huge run- up
since its initiation in the model portfolio in December.

Hollywood Media (HOLL:Nasdaq, $4.09; 1,300 shares; 4.09%; 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 core Broadway ticketing business has
consistently posted double-digit percentage revenue growth over the
past year, along with impressive deferred-revenue results, which
indicates the future remains bright for the company. Updates from
management have been infrequent, but we believe this position offers
attractive upside with limited risk for investors. Hollywood's
additions to its sales staff last quarter should have a positive
impact on ad revenue during the remainder of 2007, and the potential
for a sale of the company's 26% stake in MovieTickets.com provides
significant upside opportunity. Nevertheless, given the lack of
management commentary, we would wait for a pullback before considering
recommending additional purchases.

Taser International (TASR:Nasdaq, $12.29; 500 shares; 4.73%; Stealth
Stock): The company sells electronic control devices for use
predominantly by law enforcement, military and security personnel, but
also for personal protection. Shares moved higher this week --
prompting us to sell 300 shares and move the stock to a Two on Friday
-- on news that newly elected French president Nicolas Sarkozy's
conservative party swept first-round parliamentary elections in a
landslide this past weekend. The polls are suggesting that his party
will win the second round of voting as well, which would create a
strong parliamentary majority that would likely push through most of
his initiatives -- including adding Tasers and Taser-cams to every
squad car in the country, or about 100,000 Taser devices. As we
mentioned in our Alert on Monday, France represents just one
international opportunity for Taser as its products are currently
being tested in New Zealand, the U.K and Australia. We believe Taser
has huge potential over the next one to three years as its products
begin to roll out worldwide, but after the huge run-up in the stock
price in such a short period of time, the prudent move was to take a
little off the table.

Vasco Data Security International (VDSI:Nasdaq, $22.52; 300 shares;
5.20%; 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. On Wednesday, shares received an
upgrade by investment bank Friedman Billings Ramsey, which pushed
Vasco's rating to outperform from market perform, citing signs of
continued business strength based on its field checks. On Thursday,
however, investment bank Jefferies countered with a downgrade, moving
Vasco to a hold rating from a buy. The Jefferies downgrade was driven
by concern over a potential summer slowdown, as well as caution
regarding Vasco's ability to sustain its 70% annual growth rate in
backlog and 60% annual growth rate in revenue. We understand
Jefferies' concern, but given Vasco's stellar execution and room for
continued penetration in the U.S. market, we don't believe that
betting against the company is the smartest choice. Nevertheless, we
do not plan on adding to this position because of the stock's strong
run in 2007.

Regards,

Frank Curzio & the Stocks Under $10 Investment Team

Frank welcomes your questions on Stocks Under $10. Please email Frank
with your questions at stocksunderten@.... However, please
remember that Stocks Under $10 is not intended to provide personalized
investment advice. Do not email Frank seeking personalized investment
advice, which he cannot provide.