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TheStreet Open House

10 Safest Small-Cap Stocks

BOSTON ( TheStreet) -- U.S. stocks tumbled yesterday on signs of weak U.S. consumer confidence and an economic slowdown in China.

The Russell 2000, a small-cap benchmark, fell 2.5%, less than the S&P 500's 3.1% decline. Although small-caps represent a risky segment of the stock market, there are relatively safe investments. Here are the 10 safest small-caps, according to TheStreet's stock model. Each receives a "buy" rating and a top grade for financial strength, a gauge of balance sheet and business durability. The stocks are ordered by financial-strength score, from worst to best.

10. EZchip Semiconductor (EZCH) designs chips for high-speed networking equipment.

Quarter: First-quarter profit more than doubled to $2.9 million, or 11 cents, as revenue gained 38%. The operating margin widened from 11% to 28%. EZchip has $75 million of cash, equaling a quick ratio of 12, and no debt or interest expenses.

Stock: EZchip Semiconductor has advanced 9.4% during the past year, trailing U.S. stock indices. It trades at a price-to-projected-earnings ratio of 15, a premium to the semiconductor industry average. It's cheap based on book value and cash flow.

Consensus: Of analysts covering EZchip, one advises purchasing its shares and one recommends holding them. Capstone Investments offers a target of $28, leaving a potential return of 56%. Jefferies (JEF) values the stock at $14.

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