Top Five Small-Cap Stocks

EMS Technologies ELMG designs, manufactures and markets products for use in wireless communications. The company focuses on the needs of the mobile information user, with an increasing emphasis on broadband applications for high-data-rate, high-capacity wireless communications. The Defense and Space Systems segment manufactures custom-designed, highly engineered hardware for use in space and satellite communications, radar, surveillance and military countermeasures.

A subsidiary, LXE Incorporated, manufactures rugged mobile computers and wireless local area network products whose typical uses include real-time data communications on inventory movement in large warehouses, manufacturing facilities and container yards. The EMS Wireless segment manufactures base-station antennas and repeaters for PCS/cellular communications services. The SATCOM segment is a division of the company's Canadian subsidiary and manufactures earth-based antennas, terminals and other hardware for communications via satellite link.

Our rating for EMS Technologies was upgraded to buy from hold in January 2008. This change was driven by some notable strengths, such as its solid stock performance, revenue growth, and a solid financial position. For the fourth quarter of 2007, the company's revenue increased 5% year over year, and this revenue growth appears to have trickled down to the bottom line, as earnings per share (EPS) improved slightly.

The company has demonstrated a pattern of positive EPS growth over the past two years, reporting an increase to 46 cents in the most recent quarter from 44 cents in the fourth quarter of 2006. A debt-to-equity ratio of 0.06 is very low, implying effective management of debt levels. We also consider the company's 41.10% gross profit margin to be strong.

Investors have apparently begun to recognize the positive factors we see in this stock, as EMS Technologies shares rose 33% over the past year. This is a very nice gain, but we feel that the stock could move higher in the future. Bear in mind, however, that any unexpected regulatory changes and the acceptance or emergence of new standard formats are typical challenges faced by the Communications Equipment industry and could potentially affect this stock.

Natural Gas Services Group NGS is a Texas-based company that provides small- to medium-horsepower compression equipment to the natural gas industry. The company focuses primarily on the non-conventional natural gas production business in the United States. This includes coalbed methane, gas shales and so-called tight gas. According to data from the Energy Information Administration, non-conventional gas production is the single largest and fastest growing segment of U.S. gas production.

Natural Gas Services manufactures, fabricates and rents natural gas compressors that enhance the production of natural gas wells. The company also provides maintenance services for its compressors, and sells custom-fabricated compressors, as well as flare systems for oil and gas plant and production facilities. By renting compressors from Natural Gas Services, customers are able to increase their revenues through greater equipment run-time and can also reduce compressor downtime, operating and maintenance costs, and capital investments.

We have rated Natural Gas Services a buy since December 2006. Multiple strengths, such as compelling growth in net income and robust revenue growth, have influenced our rating for this stock. For the fourth quarter of fiscal 2007, net income increased by 56% year over year, rising from $2.3 million to $3.6 million. For the same period, revenue rose 18%, and this growth appears to have helped boost earnings per share. The company reported significant EPS growth from 19 cents in the fourth quarter of 2006 to 30 cents in the most recent quarter. Finally, Natural Gas Services has a very low debt-to-equity ratio of 0.13, and we consider the company's gross profit margin of 44% to be strong.