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Proven Small-Cap Winners: Under the Radar

BOSTON ( TheStreet) -- The following small-cap stocks have risen more than their benchmarks since highlighted them in articles during the past three months.

3. Leaf-tobacco merchant Universal Corp. (UVV - Get Report) suffered a 14% drop in fiscal third-quarter profit to $46 million, or $1.54 a share, as revenue contracted 5.4% to $661 million. Its operating margin narrowed from 11% to 10%. The stock has soared 17% since we recommended it in our Dec. 22 article Three Unloved Dividend-Paying Stocks.

Universal is still cheap at a price-to-earnings ratio of 10. Its PEG ratio, a measure of value relative to growth, of 0.4 represents a 52% discount to the tobacco-industry average. A PEG ratio below 1 implies cheap shares. Universal offers a dividend yield of 3.5% coupled with a safe payout ratio of 35%.

2. Chinese communications-equipment maker Telestone Technologies (TSTC) has not yet disclosed its fourth-quarter results. The company has a market value of just $184 million, but a record of outstanding growth. During the past three years, Telestone has increased revenue 39% annually, on average, and boosted profit 34% a year. Its stock delivered 33% annualized gains over that period.

The shares are cheap relative to those of communications-equipment peers based on trailing earnings and book value. Telestone enjoys a net profit margin of 22%. Its stock has jumped 20% since our Feb. 9 article A Google 'Do-Over'.
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