When looking for cheap stocks to buy, a simple trading strategy is to find the investments with the biggest upside potential in the shortest amount of time. So, which stocks fit the bill right now?

First, a little backrground: I must admit that I frequently find myself rooting for the little guy. In fact, I’m especially fond of "little" stocks with big upside potential. When I say "little," I am not referring to the size of the company. Rather, I am talking about companies whose share price is very low. Specifically, stocks that trade below $5.

Now, most low-priced stocks are priced that way for a reason and their value is right about where it should be. However, if you look close enough with a trained eye, it is possible to identify low-priced stocks with the potential to breakout big time — and when I say big time; I’m talking some 50% to 200% in gains. Of course, finding these stocks is no easy feat. But if you’re like me, you love the challenge of being part detective, part scholar and part investment analyst. That’s especially true when you uncover a big winner.

So, which stocks under five bucks do I think have the potential to break out?

Five of my favorites right now are: Joe’s Jeans (NASDAQ: JOEZ), MoneyGram International (NYSE: MGI), Playboy (NYSE: PLA), PMI Group (NYSE: PMI) and Synovus Financial (NYSE: SNV).

Stock Pick #1 – Joe’s Jeans (NASDAQ: JOEZ)

Nothing, not even the Great Recession, comes between consumers and their designer blue jeans. Even amidst the shakiest of consumer spending environments, turnaround denim sales rose by 3.2% in 2009. Recent retail sales at the high end also have been quite strong. Together, these two factors translate into a market sweet spot for fancy denim, and Joe’s Jeans (NASDAQ: JOEZ) is just the brand to fill this niche.

JOEZ sells affordable luxury, with jeans that typically cost from $159-$179. This might seem like a lot when compared to $40 Levis, but Joe’s is not competing with Levis. It’s competing with other high-end denim merchants, like True Religion (NASDAQ: TRLG), who often price their wares at more than $200. As such, Joe’s occupies what it believe is a unique slice of the retail market.

Stock Pick #2 – JMoneyGram International (NYSE: MGI)

Many people can be described as “under banked” or even “unbanked.” These folks are the customers of MoneyGram International (NYSE: MGI). These are people who have either no relationship with a bank or who don’t have a checking account, or people who find it more convenient to use money transfer services as opposed to a bank. In 2009, the FDIC conducted an industry inquiry where they determined that approximately 26% of Americans are unbanked or under banked. This number is likely higher in underdeveloped and emerging economies. Simple trading strategies that involve following the money will lead you to financial stocks that serve this "under banked" group.

This means to a savvy investor is that the money transfer business is big business, and one great company in the space is MoneyGram International. The company’s products include money transfers, bill payments and money orders — products directly aimed at servicing the under banked and unbanked population.

Stock Pick #3 – JPlayboy (NYSE: PLA)

The Playboy Bunny is one of the world’s most recognizable logos. To most people, Playboy magazine means entertainment, fun, leisure and of course, pretty girls. But, Playboy (NYSE: PLA) is a business just like any other, and their goal at the Playboy corporate offices is to make money.

The company has seen hard times lately, as the publishing industry in general is having a difficult time due to fierce competition from the Internet and online magazines and books. Still, Playboy’s iconic symbol alone should continue making the company money, and it will give them the opportunity to come back off the canvas and to regain its status as a successful, money-generating entertainment enterprise.

Stock Pick #4 – JPMI Group (NYSE: PMI)

When you think about the root cause of the financial debacle of the last few years, one word jumps out: mortgages. PMI Group (NYSE: PMI) is a huge player in this market. Too many loans, too little collateral and overaggressive lending all played a major role in the fiscal crisis. Now, however, the economy is beginning to improve, and the U.S. housing market is beginning to gain firmer footing. As home sales increase, companies offering protection to the lenders against mortgage defaults are in a position to see substantial growth.

PMI stands for “private mortgage insurance,” and it is an integral part of the residential housing market. PMI Group’s mortgage insurance protects lenders and investors against defaults on loans in which the home buyer’s down payment is less than 20% of the total price. If the economy and home sales continue getting stronger, then so will PMI Group.

Stock Pick #5 – Synovus Financial (NYSE: SNV)

This financial services holding company Synovus Financial (NYSE: SNV) has approximately $33 billion in assets, and that’s by no means little. Synovus provides commercial and retail banking services, as well as investment, financial management, insurance and mortgage services to customers throughout the growing economies of the Southeast, including Georgia, Alabama, South Carolina, Florida and Tennessee.

As the fallout from the financial sector turmoil of the past few years settles, Synovus has managed to solidify itself and its market-leading position. The bank is the sixth largest in the Southeast, as ranked by customer deposits, and I especially like its focus on traditional community-based, customer-service banking model. While some competitors remain distracted with management-intensive reorganizations and merger integrations, Synovus is just out there making money.

While these five stocks under five bucks have big upside potential, these cheap stocks also come with a sizeable amount of risk. But if you’re an investor who is willing to trade a little risk for the potential of big rewards, then these little but potentially big stocks are a good place to start.

As of this writing, Hilary Kramer was recommending all five of these stocks in her Breakout Stocks Under $5 investment newsletter.

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