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STOCK PICKS: Top 5 Small-Cap Stocks for Sept. 12

National Research (NCRI) assists the health care industry in the U.S. and Canada track performance at a variety of levels. The company provides survey-based performance management, analysis, tracking, and improvement and educational services and develops tools that enable health care organizations to obtain performance measurement information necessary to comply with industry and regulatory standards and to improve their business practices.

We have rated National Research a buy since November 2006. Our rating is based on a variety of strengths, including the company's expanding profit margins, good cash flow from operations and largely solid financial position. For the second quarter of fiscal 2008, net operating cash flow significantly increased by 58.91% when compared with the same quarter last year. Return on equity also improved slightly year over year.

The company's debt-to-equity ratio is very low at 0.08, implying successful management of debt levels. While National Research reported flat earnings per share for the second quarter vs. the year-earlier period and has a recent history of volatile earnings, we feel it is poised for EPS growth in the coming year.

Although no company is perfect, we do not currently detect any significant weaknesses that are likely to detract from the generally positive outlook for this company.

Integral Systems (ISYS) builds satellite ground systems and equipment for command and control, integration and testing, data processing and simulation.

Integral Systems has been rated a buy since March 2005. For the third quarter of fiscal 2008, revenue improved 16.5% year over year, climbing to $41.8 million. Income from operations was reported as $7.1 million for the third quarter, compared with $5.3 million in the same quarter last year. The company also reported net income of $4.7 million, or 55 cents per diluted share, an increase from $3.8 million, or 34 cents per diluted share, reported in the third quarter of fiscal 2007.

During the third quarter, both gross profit and operating income grew significantly in the space communications systems and government ground systems segments. The company has experienced a 34.2% increase in its year-to-date revenue when compared with the same period last year.

Management feels that the third quarter results reflect a solid financial performance and growth in the above-mentioned segments. Significant momentum and financial resources are expected to allow the company to focus on strategic growth initiatives going into the fourth quarter and the start of the next fiscal year. The company expects that such initiatives will continue to drive value for its shareholders. Earnings projections for fiscal 2008 were raised to approximately $2.15 per share.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe that a rating alone cannot tell the whole story and that it should be part of an investor's overall research.

This article was written by a staff member of TheStreet.com Ratings.
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