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.

CAM Commerce Solutions (CADA) develops a variety of software, hardware and other technical systems for retailers. Our buy rating, in place since February 2006, is based on positive investment measures including strong growth in revenue and net income, as well as a solid financial position and impressive stock performance.

This stock has surged 64% over the past year. Revenues rose by 37% year over year in the first quarter of 2008. CAM has no debt to speak of, giving it a debt-to-equity ratio of zero, which we consider a favorable sign. Net income increased 75% from the year-ago period.

Finally, the company has demonstrated an impressive pattern of positive earnings-per-share growth over the past two years. EPS grew 70% in the first quarter of 2008. 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 services and transportation services through Bay Gas Storage Company.

Energysouth has been rated buy since February 2006. Its solid stock price performance is its primary strength. Shares have jumped 49% in the past year. Although the sharp appreciation has driven the stock to a level that is expensive compared with its peers, we feel that the price is still justified at this time.

Many of the company's financials were down in the most recent quarter, but Energysouth 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 continuing expansion of midstream operations. Increased revenues from short-term storage agreements and a decrease in net interest expense partially offset this cost. The Board of Directors declared a quarterly dividend on common stock of a quarter per 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. The company's corporate offices are located in Connecticut, and there are design and manufacturing facilities in a number of other states.

We have rated Axsys buy since November 2005. In the third quarter of 2007, the company recorded strong financial performance. Demand for infrared camera and lens products increased revenues 34% year over year to $45 million. In addition, significant margin expansion and a lower effective tax rate led to a 54% increase in its bottom line to $4.1 million. Furthermore, a continued focus on core business growth through acquisition, as well as 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 could enhance production capacity and enable it to respond rapidly to changing technological developments in the industry.