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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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 and 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.

CAM Commerce (CADA) provides a variety of software, hardware, and other technical systems for retailers. Our buy rating, in place since January 2006, is based on positive investment measures such as the company's strong revenue growth, solid financial position and stock performance, and its growth in net income.

Powered by its strong earnings growth of 100%, this stock has surged by 50.20% over the past year. Revenues in the fourth quarter of 2007 rose by 32.1%. CAM Commerce has no debt to speak of, giving it a debt-to-equity ratio of zero, which we consider a relatively favorable sign.

Finally, the company has demonstrated an impressive pattern of positive earnings per share growth over the past two years. For example, net income in the fourth quarter increased 104% to 1.6 million, or 38 cents a share. Looking forward, we feel that this trend should continue.

EnergySouth (ENSI) is a holding company in the gas utilities sector. Through its subsidiaries Mobile Gas Service and Southern Gas Transmission, the company distributes natural gas to residential, commercial, and industrial customers in southwest Alabama. The company also provides underground natural gas storage and transportation services through Bay Gas Storage Company. EnergySouth is also engaged in gas marketing, merchandising, and other energy-related services.

EnergySouth has been rated buy since February 2006. Its solid stock price performance is its primary strength. Compared with its closing price one year ago, the company's share price has jumped 48.53%. While the sharp appreciation has driven the stock's price to a level that is now somewhat expensive relative to its peers, we feel that the price is still justified at this time.

Although many of the company's financials were down in the most recent quarter, this has historically been a very steady natural gas stock. According to management, the decrease in earnings was due primarily to increased operating expenses incurred as a result of the EnergySouth's continuing expansion of midstream operations. Increased revenues from short-term storage agreements and a decrease in net interest expense partially offset the increases in expenses. The Board of Directors declared a quarterly dividend on common stock of 25 cents a share.

Axsys Technologies (AXYS) designs and manufactures precision optical solutions for use by the U.S. government and high-performance commercial markets in aerospace, defense, and other applications. Axsys also distributes precision ball bearings used in a variety of industrial and commercial applications. The company's corporate offices are located in Connecticut, with design and manufacturing facilities located in a number of other states.

We have rated Axsys a buy since November 2005. In the third quarter of 2007, the company recorded strong financial performance, with a strong demand for infrared camera and lens products helping drive revenue growth of 34.4% year over year to $45.22 million. In addition, significant margin expansion and a lower effective tax rate led to a 53.6% increase in its bottom line to $4.14 million. Furthermore, a continued focus on core business growth through acquisition, as well as various measures to increase production and improve profitability, could benefit the company in the future. During the last year, Axsys acquired Cineflec in a move that offers new opportunities in the motion picture and news gathering industries. In addition, the company's investment in capital equipment and its focus on research and development activities could enhance production capacity and also enable it to respond rapidly to changing technological developments in the industry.

Looking forward, management now expects to generate $168 million to $171 million in revenue for fiscal 2007, up 7.5% to 9.4% from fiscal 2006. They anticipate earnings of $1.24 to $1.26 per diluted share from continuing operations in fiscal 2007. However, any significant reduction or delay in purchase of the company's products by the U.S. government could have an adverse effect on Axsys' financial performance, as the company derives a significant portion of its revenue from this source.

Dawson Geophysical Company (DWSN) provides 2-D, 3-D, and multi-component seismic data for its clients, who range from major oil and gas companies to independent oil and gas operators. Clients rely on seismic data to identify new areas where subsurface conditions are favorable for exploration and to develop and produce hydrocarbon reservoirs. The company was founded in 1952 and has been rated a buy since February 2006.

Dawson's strengths can be seen in its strong revenue growth, largely solid financial position, impressive record of EPS growth and good cash flow from operations. The company reported revenues of $77.6 million for the first quarter of 2008. Revenue growth in the quarter was primarily due to the expanded capabilities of existing crews, which resulted in improved efficiencies and pricing, as well as the fielding of two additional seismic data acquisition crews. Net income for the quarter was $7.7 million, compared with $5.4 million in the year-ago quarter, an increase of 42%. Earnings per share for the quarter were $1.01 per share, vs. 72 cents a share one year prior.

Management is optimistic about the current business environment, with demand for the company's product remaining robust. They feel that 2008 presents growth opportunities stemming from improved efficiencies and pricing from increased channel count.

Pericom Semiconductor (PSEM) designs, develops, and markets high-performance interface integrated circuits (ICs) and frequency control products (FCPs) used in advanced electronic systems. Interface ICs transfer, route, and time electrical signals among a system's microprocessor, memory, and various peripherals and between interconnected systems. FCPs are electronic components used as time and frequency clocks in electronic products ranging from computers and telecommunications switching equipment to cell phones and televisions. Pericom Semiconductor's interface products increase system bandwidth.

The company reported that its earnings for the second quarter of 2008 surged 94.9%, driven by strong revenue growth. Boosted by strong demand for its high-speed serial protocol solutions used in digital video and other products, total revenue for the quarter climbed 32% to $40.73 million, compared with $30.84 million in the prior year quarter. Net income for the quarter increased to $4.4 million, or 16 cents a share, from $2.26 million, or 8 cents a share, in the second quarter of 2007. The company expanded its ultra mobility solutions by launching two new USB switches that support USB High Speed capability and combine USB High Speed and audio signals for new cell phones and MP3 players.

Looking ahead, management expects revenue for the third quarter to be between $38.5 million and $40.7 million, with gross margin expected to be in the range of 36% to 37%. In addition, the company expects its interest income to be $1.4 million. However, weak demand for semiconductors, higher stock option expense, and a highly competitive market could restrict Pericom Semiconductor's future growth.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe that a rating alone cannot tell the whole story and that it should be part of an investor's overall research.

This article was written by a staff member of TheStreet.com Ratings.

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