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Top 5 Small-Cap Stocks to Consider Buying

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Sterman

NEW YORK ( StreetAuthority) -- It's crucial to avoid the trap of focusing on the same types of investments for your portfolio.

Investors tend to focus exclusively on large-caps, small-caps or dividend-paying stocks, when they should own a basket of all of them.

A diversified portfolio still brings the best combination of risk and reward, as you're not beholden to a specific economic or financial trend.

For example, investors who own nothing but high-yield stocks may underperform the market if interest rates start to rise and government-sponsored yields become comparatively more appealing.

So even as I tend to focus mostly on large and stable companies, I also keep an eye on small-cap stocks and low-priced stocks. These kinds of stocks are either off the radar or out of favor, and they often appreciate smartly while few investors even notice.

Here are five stocks trading for less than $5 that hold appeal right now. Each carries more risk than a large and stable blue-chip, so it's wise to make smaller investments in them. By doing so, you can add some upside to an otherwise steady-as-she-goes portfolio.

1. Hecla Mining (HL)

This silver miner trades just above its 52-week low, thanks to a series of recent stumbles, including the late 2011 closure of its Lucky Friday mine.

It will be several quarters before this mine is back in operation, so analysts have had to sharply curtail their forecasts for 2012 output and profits.

But Hecla also has a range of other mines ramping up, so the stage is set for a much better 2013 and 2014.

Earnings per share, for example, are expected to rise from about 30 cents to 50 cents in 2013.

Equally important, the company's mines are quite valuable: Merrill Lynch says they're worth a collective $5.80 a share in terms of Net Asset Value (NAV). That's roughly 50% greater than the current share price. And this assumption is based on a long-term price assumption of $27 an ounce for silver. The current spot price is around $30.
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