Top Five Small-Cap Stocks

Each business day, TheStreet.com Ratings compiles a list of the top five 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 is based on data from the close of the previous trading session. Today, small-cap stocks are in the spotlight. 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.

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

Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans.

Top Five Small-Cap Stocks

CAM Commerce Solutions(CADA Quote), which engages in the design, development, marketing, installation and servicing of integrated retailing and payment processing for brick-and-mortar and e-commerce businesses, has been rated a buy since December 2005.

The company has demonstrated a pattern of positive EPS growth over the past two years, and this trend is expected to continue. Fourth-quarter revenue grew by 31% over a year ago to $9.2 million. Earnings more than doubled to $1.6 million, or 38 cents a share.

Powered by the strong earnings growth and other important driving factors, this stock has gone up 62.7% in the 12 months prior to Dec. 14. While any stock can fall in a major bear market, in almost any other environment, Cam Commerce should continue to move higher. Although the company may harbor some minor weaknesses, they are unlikely to have a significant impact on results.

Multi-Color Corp.(LABL Quote) supplies decorative label solutions and packaging services to consumer product and food and beverage companies. It has been rated a buy since February 2006.

The company's fiscal second-quarter revenue grew 6.19% over a year ago to $52.1 million, outpacing the industry average of 0.7%. EPS totaled 95 cents a share, up from 31 cents a share a year ago. The company has demonstrated a pattern of EPS growth over the past two years and this trend is expected to continue. Multi-Color also has no debt to speak of, and a quick ratio of 1.52, which demonstrates its ability to cover short-term liquidity needs.

Its stock price has gone up by 8.36% in the 12 months prior to Dec. 14, and while even the best stocks can fall in an overall down market, in any other environment Multi-Color's stock still has good upside potential. These strengths outweigh the company's somewhat disappointing return on equity.

Axsys Technologies(AXYS Quote), which makes optical system components, has been rated a buy since November 2005. Robust demand for infrared camera and lens products and contributions from the acquisition of Cineflec drove third-quarter revenue growth up 34.4% over a year ago to $45.22 million.

The company increased its full-year 2007 guidance, with sales now expected to be in the range of $168 million to $171 million, up from the earlier forecast of $159 million to $163 million. EPS is expected to be in the range of $1.24 a share to $1.26, up from the previous guidance of $1.13 to $1.16. Axsys' continued investment in capital equipment and its focus on research and development could enhance production capacity and enable it to respond rapidly to changing technological developments in the industry.

The company recently said it received a $21.9 million order from BAE Systems to produce dual-field-of-view infrared imaging lenses as part of the U.S. Army's Common Remotely Operated Weapon Station program. The buy rating is not risk-free. Any significant reduction or delay in the purchase of precision optical solutions by the U.S. government could have an impact on financial performance.