The "January Effect" states that small cap growth stocks tend to outperform the broader market during the month of January. While the effect has been less pronounced in recent years, there still may be ways to exploit potential inefficiencies in the market. With that in mind, Harry Domash of MSN Money has put together a stock screen to find the 10 best small stocks for a happy New Year. In order to narrow the list of potential stock selections, Harry limits himself to stocks currently trading under $20 and with a market capitalization of less than $1 billion. In addition, he sets his stock screen to look for stocks that (1) have shown relative strength over the past 12 months; (2) are trading above their 50-day moving averages; (3) are profitable; (4) have strong growth prospects for the future and (5) have low debt risk on their balance sheets.

That combination of parameters yields some interesting investment candidates - including a company that sells equipment to semiconductor chip makers, an enterprise software company, a maker of healthcare diagnostic equipment and a company that provides construction consulting services to large corporations.

[image: The Incredible January Effect]

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