Our annual Free Lunch Menu of yearend bargain stocks was emailed to subscribers on Sunday, December 20. This year’s list was compiled using the close of Friday the week before Christmas. This ensured healthy levels of market activity and afforded us plenty of time over the weekend to remove any questionable shares.

After filtering out all preferred stocks, new issues, closed-end funds, splits and any other non-regular common stocks we selected 25 stocks from the NYSE, NASDAQ, AMEX and Bulletin Board.

This is a short-term trading strategy. You get in and get out as soon as any outsized gain materializes. These stocks all behave differently and there is no automatic trigger point to sell at. Our standard trading rules do not apply to these trades. You should be out of all of these stocks by the beginning of March as small cap outperformance begins to wane (2010 Stock Trader’s Almanac, page 110). Advice a la G.M Loeb, never forget why you bought a stock.

This year’s list got off to a strong start as the market rallied into the New Year and to new recovery highs until mid-January. At which point, growing concerns about sovereign debt, particularly in Europe, began to weigh on the market resulting in an average 8.5% correction for the major U.S. indices.

Several outsized gains were delivered by the Free Lunch, but small cap outperformance is waning and the time has arrived to close out any existing positions. Take advantage of any market strength to exit any remaining positions between now and early March.

On average, all bargain stocks in the list have gained 1.8% since December 18 while the NYSE has lost 3.0%. Only the AMEX Composite (4.2%) and Russell 2000 (0.02%) have posted gains as of the close on Friday, February 12. The Dow, S&P 500 and NASDAQ have all produced modest losses over the same time.