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Small-company stocks have slumped broadly and sharply, with the Russell 2000 Index down nearly 10% so far in 2008. While the slump reflects well-founded concerns regarding the economy and corporate earnings, the indiscriminate selling represents an opportunity for selective investors able to ride out the storm.

Even the best stocks will be hostage to market volatility in the near term, and holding a portion of equity portfolios in cash seems prudent. But abandoning stocks altogether is a mistake, for at least three reasons.

First, moving in and out of the market in an all-or-nothing fashion puts a huge premium on timing; unless you time your exit and entry correctly, you will miss big gains as stocks rally from bear-market lows.

Second, not all stocks will begin to rebound at the same time. While nearly all industry groups have slumped in 2008, history suggests group performance will diverge as investors begin to discount recoveries in some areas of the economy.

Third, many quality stocks are trading at modest valuations. For stocks in the S&P; SmallCap 600 Index, the average trailing price-to-earnings ratio is 23.8, down from 27.5 in July. More importantly, the 35 stocks on our Buy List have an average P/E of 14.3, even though all but eight of them are expected to deliver double-digit earnings growth this year.

Faro Technologies gained 300% from June 2006 to October 2007. After a tumbling 60% through January, it's up 50% from the lows. What do the fundamentals say: Buy or bail? Click here for the complete model portfolio with a free trial subscription to Upside.

Among stocks down at least 6% from 52-week highs, the stocks reviewed in the following paragraphs, along with SPSS (nasdaq: SPSS - news - people ) (nasdaq: SPSS) and Sybase (nyse: SY - news - people ), represent seven of our top rebound selections.

Atwood Oceanics (nyse: ATW - news - people ) , an operator of eight offshore drilling vessels, seems capable of reaching $115 over the next 12 months. The company is leveraged to deep-water projects and should gain from exposure to premium markets. Sales and earnings are benefiting from historically high day rates, reflecting solid underlying market conditions and robust demand for deep-water rigs.

Roughly 97% of available rig days for fiscal 2008 ending September are contracted, with nearly 40% of rig days already contracted for fiscal 2009. Strong demand is also supporting high equipment utilization. Atwood‘s small rig count allows it to meaningfully boost profits through improved day rates or fleet expansion. The downside is that each rig represents a fairly large percentage of overall revenue and cash flow, making the company vulnerable to fluctuations in pricing and utilization.

Atwood should be able to take advantage of high day rates, as two of its rigs have 2008 availability. Two new vessels are under construction, with one rig expected to join the fleet in November and a second in early 2011. For fiscal 2008 ending September, consensus estimates project per-share earnings of $6.71, up from $4.37 in 2007. Atwood is being upgraded to a "Best Buy."

EZCORP (nasdaq: EZPW - news - people ) has posted at least 28% per-share profit growth in each of the last three years. The pending acquisition of a 64-store chain suggests 2008 could be another impressive year. EZCORP, the second-largest U.S. pawn shop operator, announced in March that it would buy Value Financial Services for $100 million.

The deal will add 57 locations in Florida, where EZCORP operates 18 stores. In 2007, Value Financial had earnings before interest, taxes, depreciation and amortization of roughly $14 million, compared to $71 million for EZCORP.

Pawn shops provide nearly 70% of the EZCORP's revenue, and expansion in Mexico has the potential to be a meaningful contributor. The company opened one new Mexican store in the December quarter and plans to open six to nine more locations by October. Its 25 stores in Mexico, which face less burdensome regulation, provide more than $2 million in annual sales.

In addition, the company plans to open 100 payday-lending stores in the U.S. In January, EZCORP raised its per-share earnings guidance for fiscal 2008 ending September to $1.13, implying 28% earnings growth. Revenue should climb 19% to about $443 million. Yet the stock is trading at a reasonable 11 times estimated year-ahead earnings per share of $1.19. EZCORP is being upgraded to a "Best Buy."

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As goes the cellphone industry, so goes Syniverse (nyse: SVR - news - people ). The company monitors roaming calls and ensures wireless companies are billing customers and other providers properly. Because Syniverse is paid per transaction, revenue rises as cellphone use increases. More than two-thirds of annual sales are transaction-based.

While Syniverse boasts a strong market position in the U.S., it is also expanding overseas. In December the company completed its acquisition of Billing Services Group, which should add roughly $40 million in revenue to its Europe, Middle East, and Africa division. In 2007, the unit brought in $15 million in sales.

In addition, regulatory changes that will lower tariffs on roaming charges will likely spur increased usage. The acquisition also expands Syniverse's technological capabilities. Billing Services uses the GSM wireless standard prevalent in Europe, while most of Syniverse's business has been in the CDMA format used in the U.S.

Selling at 14 times estimated 2008 per-share earnings of $1.27, Syniverse is undervalued considering its growth potential. Consensus estimates project per-share profit gains of 15% in 2008 and 2009. Profits have topped the consensus estimate in seven of the last eight quarters. Syniverse is a "Best Buy."

W&T; Offshore (nyse: WTI - news - people ), an independent oil and natural gas company, is benefiting from strong production growth. The company, which owns working interests in more than 200 offshore fields in the Gulf of Mexico, last year achieved 89% success in its drilling program and posted 28% production growth.

W&T; has aggressively purchased attractive Gulf properties, where its efficient operations and high production rates help generate strong returns. In March, management said it was the top bidder on four properties. The bids totaled roughly $3.3 million. December-quarter profits per share from operations were 80 cents, up 54% and 13 cents above the consensus estimate. Revenue rose 28%.

Production increased 19% from the third quarter. Increased exploration should accelerate production. For 2008, the company expects to drill a record 50 wells. W&T; boasts an impressive drilling track record, with a roughly 80% success rate, versus 60% to 65% for the industry.

For 2008, consensus estimates project per-share profits of $2.79, up from $2.26 in 2007. Three months ago the consensus for 2008 was $2.28. At 12 times expected 2008 profits, the stock trades at a 36% discount to the average stock in the oil-and-gas exploration group. W&T; Offshore is a "Best Buy."

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Westinghouse Air Brake Technologies , doing business under the name Wabtec (nyse: WAB - news - people ), makes brake systems and products for locomotives, freight cars and transit vehicles. The company operates in a cyclical industry that is heavily influenced by the vagaries of government spending. But Wabtec has delivered outstanding profit growth, reflecting a broad product line, expanding international presence, and sizable recurring sales.

Per-share earnings have increased at least 25% in each of the last six years, with an annualized increase of 38%. During that span, revenue rose at a 10% annual clip. In 2007, roughly 40% of sales came from outside the U.S., up from 22% in 2006. More than one-half of annual revenue is for aftermarket parts and services. A strong market position, sizable backlog, and new orders bode well for growth.

Management estimates the company holds a 50% market share in North America for its primary braking-related equipment and a leading position in most other product lines. On Dec. 31, the total backlog stood at $1.02 billion. In March, Wabtec received orders valued at roughly $100 million to supply components for New York City subway cars.

The stock trades at a reasonable 15 times the consensus 2008 per-share profit estimate of $2.54. For 2009, the consensus is $2.81 per share. Last year the company earned $2.23 per share. "Wabtec is a Best Buy."

Excerpted from the April issue of Upside. Click here for more small- and mid-cap stock analysis and recommendations from editor Richard Moroney with a free trial of Upside.

Jack Bogle's Outlook

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