"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.

The best time before that, he says, was 1998. "The Asian flu had taken down equity markets around the world; financial firms panicked and slashed headcounts. Shortly thereafter, the market took off most unexpectedly," Oberweis says.

These are but two examples, he says, that illustrate an important lesson: "Layoffs on Wall Street are a sign of capitulation; layoffs occur after a lousy stock market, not before."

Historically, "an unemployed Wall Street Man tends to coincide with a good time to buy stocks, though few appreciate the opportunity at the time. Maybe this time will be different, but I really doubt it," he says. "Without question, our economy will face some serious headwinds in 2008. Falling home prices, stagnant economic growth, and rising inflation are a daunting trio. We first noted these issues in November 2007; but in contrast to November, our optimistic flag is flying once again, buoyed and bribed by considerably cheaper stock valuations."

The bottom line, he says, "Leave no bills under your mattress. Now is the time to be aggressively buying small-growth stocks. We may be somewhat early, but you will regret it if you miss it."

Meanwhile, the advisor has highlighted two of his recent small-cap buys. First up is Genoptix Inc. (Nasdaq: GXDX), with a market cap of $358 million. The company, he says, is a specialized laboratory services provider focused on delivering clinical diagnostic services to hematologist and oncologist physician customers.

"Genoptix has a group of highly trained hempaths (hematopathologists) that utilize sophisticated diagnostic technologies to aid physicians in treating patients with malignancies of the blood and bone marrow such as leukemia," Oberweis says.

The company competes with larger lab providers such as LabCorp and Quest Diagnostics, he says, but Genoptix differentiates itself with a highly specialized service and a focus on fast turnaround and superior customer service.

"In the company's latest reported fourth quarter, sales increased approximately 138% to $18.6 million from $7.8 million in the fourth quarter of last year,” he says. “Genoptix Inc. reported earnings per share of $0.27 in the latest reported fourth quarter versus a loss in the same quarter of last year.

He second small-cap idea is Virtual Radiologic Corp. (Nasdaq: VRAD), with a market cap of $283 million. This company provides teleradiology solutions to radiology practices and medical centers throughout the United States.

Utilizing proprietary workflow technology, Oberweis says, Virtual Radiologic's predominantly U.S.-based physicians perform preliminary and final read interpretations for emergent and non-emergent needs around the clock.

"Virtual Radiologic's American Board of Radiology-certified radiologists are collectively licensed in all 50 states. Virtual Radiologic is Joint Commission-certified and serves hundreds of clients supporting more than 800 medical facilities," he says. "In the company's latest reported fourth quarter, sales increased approximately 41% to $22.9 million from $16.2 million in the fourth quarter of last year. Virtual Radiologic reported earnings per share of $0.14 in the latest reported fourth quarter versus $0.10 in the same quarter of last year."

As for Genoptix and Virtual Radiologic, he discloses that clients of Oberweis Asset Management own approximately 252,000 shares and 475,00 shares, respectively. For both stocks, he says, "These shares may be appropriate for risk-oriented investors."

For more information on Genoptix Inc., read our Spotlight column on the company.

For 25 years, Steven Halpern has conducted an annual survey asking the leading newsletter advisors to select their favorite stocks for the year. His 2008 report features 120 top picks. You may download the report for free by clicking here.