It sure is starting to look like this bear market is over, isn't it?

We can't be sure just yet, though investors in CEL-SCI (Amex: CVM), YRC Worldwide (Nasdaq: YRCW), Quantum Fuel Systems Technologies Worldwide (Nasdaq: QTWW), ATP Oil & Gas (Nasdaq: ATPG) are likely convinced. Each of those stocks is up more than 50% ... over the past month alone.

Some analysts, like PIMCO's Mohamed El-Erian, believe that the rally is over, and that "valuations are ahead of fundamentals."

It's safe to say that negativity still abounds
The late Sir John Templeton called scenarios like the one we've been experiencing "points of maximum pessimism." He also taught that times of maximum pessimism are the best time to buy -- and he practiced what he preached.

When the Second World War began, and stocks started to fall, he borrowed $10,000 and invested it in 104 companies whose shares were trading for less than $1 -- including 34 that were in bankruptcy. Four years later, he sold his positions for $40,000, booking a 300% gain on stocks the market thought were doomed.

With his example in mind, I believe the pessimism still lurking around -- in the midst of unprecedented gains -- continues to signal a buying opportunity.

Stocks to profit from pessimism
We should be buying stocks that, like Templeton's initial bet on pessimism, could become double- or triple-baggers in the four or so years coming out of this bear market.

We know the top stocks since the last recession beganwere mostly small caps -- albeit with a few mid-cap rock stars like Apple mixed in. Among other things, small companies can more quickly and efficiently cut costs and streamline operations than their larger peers, which maintain employees and resources scattered throughout the country and the world.

But which companies have outperformed since the endof that bear market? I ran a screen to see what kinds of companies were double-, triple-, or even-better-baggers as the recession receded. And sure enough, the best-performing companies over the following four years were all small caps:

Company

4-Year Return
from Oct. 9, 2002

Oct. 9, 2002 Market Capitalization
(in millions)

AmericaTower

5,137%

$139

YFP

2,857%

$434

Research In Motion

2,422%

$705

Bancolombia

2,067%

$203

WESCO International

2,054%

$142

Corning

1,890%

$1,173

Crown Castle International

1,830%

$373

AES

1,767%

$597

Coldwater Creek

1,670%

$131

McDermott International Continued...