Stockpickr: The Top Small-Cap Value Plays

As Warren Buffett has said, the three most important words in investing are "margin of safety." Although small-cap companies offer the highest potential reward -- small-caps that graduate to large-caps offer multiple 1,000% returns -- they also are most likely to fall apart and become worthless.

At Stockpickr we keep track of, and update regularly, a portfolio of small-cap value plays. These are stocks with market caps of less than $1 billion, P/E ratios of less than 10 and little or no debt.

For whatever reason the market has abandoned them, but they often are candidates to be acquired or bought up by the large mutual funds once Wall Street recognizes the potential of their earnings.

Focusing on little debt ensures that liabilities won't eventually take over and destroy the company. This gives us -- to some extent -- a margin of safety. In addition to the link above, you can find this portfolio and other similar portfolios in our Today's Lists section on Stockpickr.

FreightCar America(RAIL Quote) is one of the names on this list. The stock is significantly off its 52-week high of $78, a level I believe it can easily reach again over the coming 12 months.

FreightCar agrees with this thesis, as it recently used its cash to announce a $50 million buyback program. Looking at the basic numbers, the company has a market cap of $743 million, but subtracting out its $184 million in cash gives it an enterprise value of just $559 million. That's nothing compared with its $180 million in cash flows. That means the company is trading at just 3 times cash flows.

The rail-car industry is very cyclical, and, in fact, FreightCar's backlog of rail-car orders has gone down significantly lately. That said, the company is the leader in this space, and the aging fleets of many of the railroads guarantee that orders will be forthcoming.

Analysts currently expect the company to earn $6.22 a share in 2007. How have analysts done when predicting prior quarters? The company has beaten analyst expectations for the past four quarters in a row.

FreightCar America (RAIL)