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.

Exactech (EXAC) develops, markets and sells orthopedic implant devices, related surgical instrumentation and biologic materials to hospitals and physicians in the U.S. and 27 other countries. The company produces knee systems and other joint replacements. Exactech's revenues are derived primarily from sales of its knee- and hip-replacement systems; however, revenue from the worldwide distribution of biologic materials have increased as a percentage of the company's total revenue.

Exactech has been rated a buy since March 2007, primarily due to a strong financial performance, higher guidance, and a currently favorable industry trend. In the third quarter of 2007, net sales increased 23% year over year to $30 million, largely due to the success of new products and continued growth from existing products.

Exactech performed well in both domestic and international markets on the revenue front; the company reported a 24% increase in revenue from the domestic market and a 21% increase in revenue from international markets. Management raised its fiscal 2007 guidance and now expects revenue for 2007 between $120.5 million and $122.5 million, with earnings in the range of 78 cents to 79 cents a share.

We expect Exactech to benefit from continued innovation and expansion. It remains focused on improving its existing line of business, and it is also awaiting approval on several new products in both the U.S. and overseas markets. However, the company is highly exposed to foreign exchange risks with its increasing share of global business, and stiff government regulation could negatively impact product approvals and therefore operating results.

CAM Commerce (CADA) provides a variety of software, hardware and other technical systems for retailers. Our buy rating, in place since February 2006, is based on strong revenue growth, a solid financial position, strong stock performance, and growth in net income.

Powered by earnings growth of 70% for the first quarter of 2008, this stock has surged by 64% over the past year. Revenue rose 37% year over year for the first quarter. CAM Commerce 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 quarter.

Finally, the company has demonstrated an impressive pattern of EPS growth over the past two years. Looking forward, we feel that this trend should continue.

AZZ (AZZ) manufactures electrical equipment and provides hot dip galvanizing services. The company serves the global markets for power generation, transmission and distribution, general industrial markets, and the national steel fabrication market. Its electrical and industrial products transmit medium- and high-voltage electricity as well as protect the distribution of power from the point of generation to the end user. AZZ's galvanizing segment, Aztec Galvanizing Services, consists of a coordinated group of 20 hot dip galvanizing plants located across the southern U.S. They provide environmental corrosion protection to steel products.

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