STOCK PICKS: Top 5 Small-Caps for July 4

Management announced that the company anticipates another year of record revenue and earnings, given that all three of the operating segments are performing better than expected. Fiscal 2008 EPS is now estimated at $1.90 a share. While the company currently shows relatively low profit margins, we feel that its strengths should help its stock price move higher despite having already experienced a very nice gain of 75.4% over the past year.

Key Technology(KTEC Quote) designs, manufactures, sells and services process-automation systems that integrate electro-optical inspection and sorting, specialized conveying, and product preparation equipment. Automated inspection systems are used in a various applications to detect and eliminate defects, most often during the processing of raw and semi-finished products.

Key Technology has been rated a buy since February 2007. The company's strengths can be seen in a variety of areas, including its growth in revenue, net income, and earnings per share. For the second quarter of fiscal 2008, the company's revenue rose by 31.3% year-over-year. This appears to have helped boost earnings per share, which improved significantly from 11 cents in the second quarter of fiscal 2007 to 22 cents in the most recent quarter. The net income increased 96.4% when compared to the same quarter one year prior, rising to $1.19 million from about $600,000. An additional sign of strength for the company is that its current return on equity improved from the same quarter of fiscal 2007.

The recent surge in commodity costs is a challenge to the machinery industry. This could affect Key Technology's results in the future. However, the company reported its best first half bookings, shipments and earnings performance in its history in this fiscal year, and management expects that recently released new products, such as Manta and the Pulse Scrubber, will contribute to the company's orders and shipments for the second half of fiscal 2008.