STOCK PICKS: Top 5 Mid-Caps for Aug. 28

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 we focus on mid-caps. These are stocks of companies that have market capitalizations of between $500 million and $10 billion 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.

Donaldson(DCI Quote) is a worldwide manufacturer of filtration systems and replacement parts.

Donaldson has been rated a buy since December 2002. Our rating is based on the company's strong revenue growth, improving margins, low leverage levels and healthy cash position. These positives are further supplemented by higher engine filtration unit sales, robust off-road products and aftermarket sales and improved capacity utilization.

For the third quarter of fiscal 2008, Donaldson's revenue grew 21.4% year over year, driven by double-digit growth in its industrial products and engine products segments. Led by the higher revenue growth, the company's gross profit margin improved 96 basis points to 34.99% during the quarter, while its operating margin improved 44 basis points to 10.81%.

Net income grew 14.5% to $45.99 million from $40.15 million in the third quarter of fiscal 2007. Additionally, Donaldson's cash position was enhanced by a 10.5% increase in cash and cash equivalents, while net operating cash flow soared 112.3% to $57.54 million.