Gains In This Stocks Market

2009 isn't shaping up to be a great year for hot stocks thus far. Though it's only March, the S&P has already shed 13%, and small-cap indexes, like the Russell 2000 are faring even worse on the year.

But that doesn't mean that there aren't gains to be found even in this shaky market. It's not always clear how to pick a winner, so let's take a look at what's been working. Over at the Penny Sleuth's big brother, Penny Stock Fortunes, subscribers already booked 2009 gains for two stocks that averaged 27% � Soapstone Networks (SOAP: NASDAQ) and CarMax (KMX: NYSE).

Generating new stock names can be a tough process. After all, it's not every day that you hear about a new small-cap that's doing great things. You have to be proactive in your search for tickers.

In the case of Soapstone, which returned 16% in just a few months, the best stock screen was what put the company on our radar. The screen told us that qualitative factors looked good � the balance sheet was strong, there was plenty of cash to ride out the recession, and the income statement showed signs of growth.

But knowing the financial numbers is only half the battle…the qualitative side of Soapstone was just as essential. The company was just coming out with a proprietary networking product, the Provider Network Controller (PNC), that could turn out to be huge for their business. While the success of the PNC was a risk, the company had already demonstrated industry demand and the PNC technology had already won innovation awards from some of the biggest publications in the field.

We bought Soapstone at $2.15, and sold the stock at $2.50 � a 16% gain. For CarMax, the investment process was a bit different. The company probably isn't your idea of a small-cap, and until recently it wasn't ours either. But that all changed in the last year as scores of powerhouse companies fell into small-cap territory at the heels of a rough and tumble stock market.

CarMax was a company we were already familiar with; it's a household name after all. The industry leading used-car superstores are known for their no-haggle prices and 125-point inspections. But what investors should have known was that credit crunched car-buyers would be flocking to CarMax over new car dealers as the economy worsened.

Sure enough, investors oversold the best stock investment when they announced a narrow loss � that's when we took our position in the otherwise financially fit auto retailer. We bought into CarMax at $7.36 and sold at $10.16 just 44 days later for a 38.04% profit.

The big takeaway from all this is that timing is everything in this market. While our investment strategy is normally a long-term buy and hold approach, the volatility and investor fear that's saturating the market is making that method difficult to swallow.

Be prepared to invest in solid, financially fit companies, and push the sell button if the stock jumps more than it should. Both of the top stocks we sold this year fit that mold, and both made us double-digit gains in a losing market.