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Make a Bet on Three Cheap Stocks

Shares from these three companies sell for less than they're worth, and they are poised for a turnaround.

Sometimes you may want to invest just for fun. But when it comes to mad money, don't bet too much, and apply a little method to your madness. One strategy is to pick down-on-their-luck stocks that once traded for more and that have real revenues -- even though profits are currently scant or nonexistent. You're betting that the market has overreacted, which is often a safe bet, and that a turnaround is just a couple of quarters' worth of good results away.

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TiVo (symbol TIVO, recent price $6) invented digital TV recording. Like Xerox and FedEx, its name is used as a verb, so its brand recognition is strong. But the stock has lagged because of fears that bigger communications powers will muscle the business away or force TiVo to spend its scarce reserves to defend its base of 4.4 million customers. TiVo's counterattack includes selling advertising, launching a high-definition recorder and signing marketing deals with Comcast and other media companies. TiVo first offered its stock at $16 in 1999, but at $6, it's worth a shot.

UQM Technologies (UQM, $4) makes parts for electric-vehicle motors and performs contract electric-propulsion research. It's a tiny company, with annual revenues below $10 million, but product sales rose 53% last year and contract-research revenues rose 37%. UQM's idea is to help develop electric-powered motors for heavy trucks, military vehicles and off-road SUVs. The company is speculative because it's small and loses money, but it has good customers (including the U.S. government and Air Force) and the numbers are moving in the right direction.

Omnova Solutions (OMN, $5) makes, among other things, simulated marble and granite countertop surfaces. If you've looked at replacing a Formica countertop recently, you know that such synthetic-stone surfaces are all the rage. The company swings from small profits to small losses, but its financial picture is improving.

As for our $1,000 low-price stock picks last year, we called two out of three: Design Within Reach rose from $5 to $6, and Hanger Orthopedic Group was up from $7 to $12. Phoenix Footwear was the one loser, dropping from $5 to $2.75.

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