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The Gist

I posit the stocks covered in this article are well positioned for upside in 2013 based on macroeconomic, sector or company specific catalysts coupled with fundamental buying opportunities. However, many are trading at significant discounts due to incessant negative macroeconomic headlines and a lack of confidence from investors that the economic picture will improve. Well, that may have just changed by the passing of the Fiscal Cliff bill. I posit this will boost the confidence of the American people and potentially kick start the global economy.

If you ignore the noise, do your due diligence, have a long-term time horizon and courage in your convictions, you can be successful. I have selected five stocks to review that have the strong potential for solid gains in 2013. I think they are worth a look.

The Goods

In my opinion, the following stocks have clear near-term catalysts for growth and may outperform the market indices in 2013. I posit this is just the beginning for these stocks which may present excellent buying opportunities at current levels.

Additionally, the five stocks are trading at or below $10. Stocks trading for $10 or less tend to be more volatile with frequent, larger percentage moves in the stock price. This provides the opportunity for greater returns (or losses) relative to the market or more bang for your buck so to say.

In the following sections, we will perform a review of the fundamental and technical state of each company followed by an analysis of the underlying catalysts and downside risks for the stocks. The following table depicts summary statistics and Thursday's performance for the stocks. The following charts are provided by Finviz.com.

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AK Steel Holding Corporation (AKS)

The company is trading 54% below its 52-week high and has 16% upside based on the consensus mean target price of $5.42 for the company. AK Steel was trading Thursday for $4.67, down over 2% for the day.

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Fundamental Review

AK Steel has some fundamental positives. AKS is expecting EPS to rise by 123% next year and by 27% over the next five years. The company trades for approximately 10% of sales. Recent debt and equity issues are now priced in. Near-term liquidity risk for the company has been removed.

Technical Review

Technically, the stock had been in a well-defined trading range since June until mid-November when they announced the sale of additional stock to shore up their balance sheet. The stock found a bottom at $3 and began moving higher consolidating as it goes. It recently breached the 50-day sma which is a bullish signal. This is what caught my eye.

Catalysts

Credit Suisse believes the resolution of the fiscal cliff, coupled with attractive steel-industry fundamentals and upside risk to China, suggest the steel sector is poised for a bounce and AKS is one of their picks.

There are several reasons AKS should rebound. Goldman Sachs and Dahlman Rose upgraded AK Steel to Hold from Sell citing they believe the implications of recent debt and equity issues have been priced in and near-term liquidity risk has been removed.

Furthermore, Chairman and CEO James Wainscott recently purchased 100K shares at $3.845 each.

Finally, AKS said recently it will increase current spot market base prices for all carbon flat-rolled steel products by $30 per ton, effective immediately with new orders.

Downside Risks

The Eurozone sovereign debt debacle could finally implode causing another credit crunch large enough to disrupt the global economy.

Execution risk: AKS does not meet earnings expectations due to lagging sales or inability to get costs under control.

U.S. falls into another recession.

At some point you have to start making money. AKS has a net profit margin of -16.15%. If the company cannot get its house in order and turn a profit it cannot continue as a going concern.

My Take

I like it when the CEO puts his money where his mouth is, the company is raising prices and taking actions to shore up the balance sheet. I posit this is a buying opportunity in AKS at this level. I see global economic growth gaining traction in 2013. This should underpin AKS going forward.

Alcoa, Inc. (AA)

The company is trading 16% below its 52-week high and has 15% potential upside based on the consensus mean target price of $10.41 for the company. Alcoa was trading Thursday for $9.07, up almost 1% for the day.

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Fundamental Review

Fundamentally, Alcoa has several positives. The company has a forward P/E of 13.62. Alcoa is trading for 71% of book value. The company pays a dividend with a yield of 1.33%. Alcoa's projected EPS growth rate for next year is 164%.

Technical Review

Technically, the stock has fulfilled a double bottom reversal pattern which is a buy signal. The stock marked a bottom at $8 for the second time this year in November. The stock has since breached the 50-day sma which fulfilled the reversal pattern.

Catalysts

Many people believe the yield curve will soon steepen. What this typically indicates is investors expect rising inflation coupled with stronger economic growth. Improving growth causes the demand for longer-term capital to increase. Long-term capital is needed to fund new commercial building and properties being created. Alcoa should benefit from this secular trend.

Downside Risks

The Eurozone sovereign debt debacle could finally implode causing another credit crunch large enough to disrupt the global economy.

Alcoa does not meet expectations due to lagging sales due to competition or inability to get costs under control.

U.S. and China fall into recession.

At some point you have to start making money. AA ha a net profit margin of -1.09%. If the company cannot get its house in order and turn a profit it cannot continue as a going concern.

My Take

The risk/reward may favor long trades at this point with the stock testing the lows for the year at the $8 mark and bouncing higher. If you are a long-term investor, this could be a chance to pick up Alcoa near its lows. I like it going into earnings next week.

Micron Technology Inc. (MU)

The company is trading 25% below its 52 week high and 30% potential upside based on the consensus mean target price of $8.99 for the company. Micron was trading Thursday for $6.90, up 4% for the day.

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Fundamental Review

Fundamentally, Micron has some positives. Micron's forward P/E is 14.08. Micron is expecting EPS to be up 190% next year according to Finviz.com. Micron is trading for approximately 94% of book value and 88% of sales. Micron insider ownership has increased by 45% over the past six months.

Technical Review

Technically, Micron is in an uptrend. The stock reversed trends at the beginning of November. The stock broke through major resistance at the 50-day and 200-day SMAs and kept on going. This is bullish.

Catalysts

Micron is popping 4% today alone due to the fact Rambus Inc. (RMBS), the designer of high-speed memory chips, was barred by a judge from using 12 of its patents to demand royalties from Micron Technology Inc. because it improperly destroyed documents tied to intellectual-property litigation.

Furthermore, Goldman Sachs sees Micron moving higher based on an improving supply/demand balance. Goldman doesn't see NAND flash memory vendors making "meaningful capacity additions" through mid-2013, even though many have all cut supply lately. In the meantime, demand growth is steady and could see upside if cheaper solid-state drives are rapidly adopted.

Downside Risks

Micron is focused on a segment of the market that is highly speculative. Technology changes rapidly which could render Micron's products obsolete.

Furthermore, some of Micron's products are highly commoditized. This is inherently risky based on the fact you have no pricing power.

My Take

Micron should benefit from this more favorable supply/demand balance. I believe the risk/reward is favorable for the longs here. I would wait for it to cool off some first though.

SandRidge Energy, Inc. (SD)

The company is trading 29% below its 52-week high and has 20% upside based on the consensus mean target price of $7.70 for the company. SandRidge was trading Thursday for $6.45, up slightly for the day.

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Fundamental Review

Fundamentally, SandRidge has a few positives. SandRidge is trading for slightly over book value. SandRidge has a net profit margin of 8.57%. Quarter-over-quarter sales are up 46%.

Technical Review

Technically, the stock had been on a nice little run since the start of November. The stock broke above the 50-day SMA and is now trading 4% above it. Nevertheless, the stock is still in a long-term downtrend.

Catalysts

The steepening yield curve indicates we may see an uptick in global growth which bodes well for oil and gas companies like SandRidge.

SandRidge is in the process of rebalancing its production efforts to focus on liquids which are much more profitable.

A plan to remove the company's leadership being promoted by investment group TPG-Axon Capital may or may not prevail. Nevertheless, I posit the spotlight placed on management by the move will cause positive results regardless of what happens now.

Significant insider buys occurred last quarter.

Downside Risks

Global growth wanes causing the price of oil and gas to plummet.

SandRidge fails to execute on plans to lower costs and improve profitability.

My Take

I see the current sell off as a buying opportunity. The issues will be resolved and the company will snap back with time. I like Tom Ward, the CEO of SandRidge. I believe he will succeed with his plan to increase EPS substantially over the next three years. The stock is a buy here.

Vringo, Inc. (VRNG)

The company is trading 39% below its 52-week high and has 186% upside potential based on the consensus mean target price of $10 for the company. Vringo was trading Thursday for $3.50, up nearly 20% for the day.

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Fundamental Review

Fundamentally, Vringo has a few positives. EPS this year is up 41%. Vringo has $0.12 in cash per share. The stock trades for 2.5 times book value. Nevertheless, the reason investors may start a position in Vringo will most likely not be based on fundamentals but the patent lawsuit results.

Technical Review

Technically, the stock has been in a downtrend since soaring to $6 in October. The stock popped 20% today based on rumors Google is considering paying Vringo an ongoing royalty. This would be significant for Vringo.

Catalysts

Vringo is successful in defending its patents and receives appropriate remuneration for them that exceeds expectations.

Downside Risks

Vringo is unsuccessful in defending its patents and receives less than expected remuneration for them.

My Take

Vringo Inc. has won its patent suit against a handful of technology giants, including Google Inc. and AOL Inc. Now we are trying to figure out how much that is worth. I think it's more than $3.50 a share. We may see another run in the stock as more news of a deal leaks.

The Bottom Line

The risk/reward ratio for these stocks looks favorable for long trades at the time. We are talking about investing in these stocks for the long haul. I suggest you take your time and layer into any new positions.

There may be more buying opportunities ahead for these stocks as politicians navigate the many hurdles they will face in the near future. Take your time building a position. One of the major factors affecting your potential return in a stock is your cost basis.

Source: 5 Stocks Under $10 Well Positioned For Upside In 2013

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.