Newsletter Watch: Small-cap medical stocks

"Bad, ugly times are priced into the market," says Jim Oberweis, Jr., editor of The Oberweis Report. The advisor is focused on growth stocks and is known for his Octagon Strategy, which assesses growth stocks based on eight primary metrics, including growth expectations, financial stability and valuation.

Perhaps the most critical of these concerns is that a stock's price-to-earnings multiple not exceed its growth rate. In other words, if the P/E is 30, the stock must be showing 30% annual growth. This steadfast focus on growth at a reasonable  price has led to a top long-term performance record for Oberweis.

"Fear of the future is what drives stocks lower and when the market is near the bottom, it doesn't usually feel like better times lie ahead,” he says. “But when everyone is betting on bad times, even mediocre improvements can lead to powerful rallies."

One sign that adds to Oberweis' current bullishness is the move by Wall Street firms to lay off employees. "Fears have been brought to life by layoffs at Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Morgan Stanley (NYSE: MS), Lehman Brothers (NYSE: LEH) and Bear Stearns (NYSE: BSC),” he says.

To be precise, he says, the last time the "Wall Street Man and the Common Man met in line at the unemployment office" was in mid-2002, after the dot-com bust had crushed the investment banks and shaken technology firms alike.”

He says that at that time, the investment industry shrank, confidence sagged and layoffs ensued, but as it turns out, it was a good time to be buying stocks.

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