10 Small-Cap Stocks Safe for Skittish Investors (Udate1)

(Story updated to add that Copart recently announced a 2-for-1 stock split.)

BOSTON (TheStreet) -- The small-cap stock sector may be one of the most fertile fields to plow this spring as the economy heats up.

Although the S&P SmallCap 600 Growth Index is running right on par with the S&P 500's 12% gain this year, it's up 35% since early October when the markets' recovery began. According to S&P Capital IQ chief equity strategist Sam Stovall, small-cap stocks historically have, on average, risen 47% in the 12 months following a market bottom. That means it may not be too late to go small-cap-stock shopping.

The downside to investing in the small-cap sector is that it can be a rocky patch during periods of economic uncertainty, and its stocks can be highly volatile.

In light of that, S&P Capital IQ analyst Jim Corridore screened a large number of small-cap growth mutual funds to find those with the lowest beta, a measure of a stock's or a fund's performance in relation to the overall market, and is indicative of their volatility.

He found three funds that have very low volatility, coming close to a beta of 1, which means their portfolio moves in step with the broader market. They also get high ratings from S&P Capital IQ for performance and management competence.

They are the $540 million Loomis Sayles Small Cap Growth Retail Fund (LCGRX), up 11% this year; the $262 million Nicholas Limited Edition I Fund (NCLEX), up 12%; and the $533 million Wasatch Core Growth Fund (WGROX), up 11%.

I then reviewed the three funds' portfolios to identify some of their best-performing stocks, and they should be quality picks as well, since they, in effect, have gone through two independent screens, that of their fund managers and then, indirectly, Standard & Poor's.

As can be expected in the small-cap sector, these funds have some quirky holdings. For example, the Loomis Sayles fund's top pick is a software firm that sells a program that does all the back-office work for car dealers. The top three holdings of the Nicholas fund include two women's products retailers. The Wasatch fund's top selection is an auctioneer of totaled cars and recovered stolen vehicles.

Here are 10 of the top stock picks of three low-volatility, highly rated small-cap growth funds, ranked in inverse order of their number of "buy" ratings:

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