Top 5 Small-Cap Stocks: Hawkins, NCI

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The following small-cap companies have market values of $50 million to $500 million, and receive "buy" ratings from TheStreet.com Ratings' proprietary quantitative model, which considers more than 60 factors. They are ordered by their potential to appreciate.

Hawkins(HWKN) blends and distributes bulk and specialty chemicals for water treatment, and industrial and pharmaceutical use.

The numbers: Fiscal fourth-quarter revenue rose 32% to $68 million as net income surged 194% to $5.09 million and earnings per share climbed 182% to 48 cents. Operating margin increased 694 basis points to 11% and net margin jumped 413 basis points to 7.5%. The company has zero debt and ample liquidity, as reflected by a quick ratio of 2.1.

The stock: Hawkins has risen 43% in 2009, far outperforming the Dow Jones Industrial Average and the S&P 500. Yet, the stock trades at a price-to-earnings ratio under 10, less than half the peer average of 20. The stock offers a weak 0.26% dividend yield.

Applied Signal Technology(APSG) provides intelligence, surveillance and reconnaissance wares for the defense and homeland security markets.

The numbers: Fiscal second-quarter revenue increased 18% to $54 million as net income and earnings per share doubled to $4 million and 31 cents, respectively. Operating margin climbed 581 basis points to 12% and net margin ascended 314 basis points to 7.6%. The company has an ideal financial position, with just $4 million of debt and $55 million of cash, amounting to a high quick ratio of 4.62 and a low debt-to-equity ratio of 0.03.

The stock: Applied Signal Technology is up 25% in 2009, outperforming all major U.S. indexes. The stock trades at an expensive price-to-earnings ratio of 24 and pays a 2.2% dividend yield.