Top Five Small-Cap Stocks

Pericom Semiconductor(PSEM Quote), which makes integrated circuits and frequency-control products, has been rated buy since February on the basis of the company's revenue, net income and operating cash flow growth over the last quarter and fiscal year. Also, Pericom has a healthy cash balance, an improved return on equity and minimal long-term debt.

Fiscal-year first-quarter net profit surged 139% over a year ago to $3.9 million, or 15 cents a share, bolstered by strong demand for its products. Sales climbed 24.8% to $38.5 million. Operating expenses edged up 1.9% to $9.92 million from $9.74 million as a result of higher selling, general and administrative expenses and stock-based compensation costs. Finally, higher interest and other income, which advanced to $1.37 million, also helped the net income increase.

During the quarter, Pericom expanded its digital video solution product portfolio by introducing a dual mode DisplayPort to DVI/HDMI Bridge. The company also launched two new HDMI switches under the same segment. To meet its target for the share-repurchase program, Pericom repurchased 454,000 shares of its stock during the quarter at an average price of $10.93 for a total of $5.00 million. On the downside, stiff competition and a weaker gross margin could negatively affect its future earnings.

Actuate(ACTU Quote) provides software and services for business intelligence, performance management and reporting applications. It has been rated a buy since September 2006.

The company's strengths are seen in multiple areas, including its solid stock price performance, compelling growth in net income and largely solid financial position with reasonable debt levels by most measures. These strengths should outweigh the company's weak operating cash flow. Third-quarter profit climbed 83% to $4.6 million, or 7 cents a share, while revenue jumped 9% to $34.7 million.

Actuate's stable EPS over the past year indicates that the company has sound management over its earnings and share float, and TheStreet.com Ratings believes these figures will begin to experience more growth in the coming year. Although no company is perfect, Actuate does not currently demonstrate any significant weaknesses that are likely to detract from the generally positive outlook.