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Three Small-Cap Picks From Top Hedge Fund

BOSTON ( TheStreet) -- The hedge fund Greenlight Capital, run by David Einhorn, has returned 22% annually, on average, since its 1996 inception, outperforming U.S. stock benchmarks by wide margins. Here are three of Einhorn's favorite small-cap stocks.

3. Einstein Noah Restaurant Group (BAGL) owns and franchises bagel shops. During the past three years, it has doubled earnings per share annually, on average. Greenlight Capital owns about 11 million shares, or 65% of the float.

Quarter: First-quarter profit tumbled 66% to $620,000, or 3 cents, as revenue inched up to $101 million. The operating margin widened from 3.1% to 4.4%. Einstein holds $11 million of cash and $96 million of debt, equal to a debt-to-equity ratio of 1.3.

Stock: Einstein Noah has advanced 71% during the past year, beating U.S. stock indices. It trades at a price-to-projected-earnings ratio of 14 and a price-to-cash-flow ratio of 5.9, 59% and 54% discounts to peer averages. It's also cheap based on sales.

Consensus: Of analysts covering Einstein Noah, five, or 63%, advise purchasing its shares and three recommend holding them. D.A. Davidson offers a price target of $17, leaving a potential return of 29%. Jefferies (JEF) expects the stock to hit $15.

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