TheStreet.com Ratings: Top 10 Small-Cap Stocks

Each weekday, TheStreet.com Ratings compiles a list of the top 10 stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the Ratings section of our Web site.

This list, updated daily, is based on data from the close of the previous trading session. Today, we look at small-cap stocks. These are stocks of companies that have market capitalizations of between $50 million and $500 million that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.

In addition, the stocks must be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. The stocks are ordered by their potential to appreciate.

Up first today is Preferred Bank(PFBC Quote), which has 10 full-service branches focused on California's Chinese-American population. The company's stock has earned a buy rating since December 2005. Preferred Bank should outperform most stocks we rate on the basis of its steady EPS growth, positive increases in net income, compelling return on equity and solid stock performance.

The stock is relatively more expensive than its peers. However, Preferred Bank shows no glaring weaknesses, and its strong financial performance justifies its higher price level.

---

EnergySouth(ENSI Quote) is a holding company concentrated on the purchase, distribution, storage and transportation of natural gas in southwest Alabama. The company's stock has been rated a buy since March 2005. Its strengths include strong net operating cash flow, a debt-to-equity ratio below the industry average and remarkable stock price growth. Although its stock price is expensive relative to its peers, we believe the higher price is justified.

Though EnergySouth shows a disappointing return on equity, its overall financial strengths outweigh its weaknesses, and the stock merits a buy rating.