Top 5 Small-Cap Stocks to Consider Buying

The good news: Investors need not wait years and instead just a few more quarters to analyze that Phase III data.

If the news is good, then Celsion is likely to pop up on the radar of many biotech investors.

In a best-case scenario, ThermoDox could be selling in Europe and China in the first half of 2013, and in the U.S. in the second half of the year.

Management will provide a progress report when first-quarter results are released in mid-May.

5. Cenveo (CVO)

Buying on the way down. That's what insiders have been doing at this printing company.

The still-slow economy, coupled with a move toward electronic communication, has led to a pullback in demand for printed envelopes, stationary, labels and direct mail materials.

Sales of $1.9 billion in 2011 remain below the $2.1 billion peak seen back in 2008. But even with top-line challenges, Cenveo still throws off ample free cash flow: $65 million in 2011 and a cumulative $350 million during the past five years.

Yet shares remain under pressure because Cenveo carries more than $1 billion in debt.

As a result, the company generated $133 million in operating income in 2011 but had to pay out $116 million of that in interest payments.

So here's the opportunity for investors: Pay close attention to operating income and interest expense when first-quarter results are released in a few weeks, (and perhaps again in the June quarter).

If operating income is starting to pull away from interest expense, then Cenveo may have the makings of a solid turnaround candidate.

Risks to Consider: In a falling market, investors tend to especially shun small-cap stocks, so these companies could fall even further out of favor if the indices pull back sharply.

Action to Take: These companies aren't simply cheap. They've stumbled badly (except for Celsion, which had a too-weak balance sheet).

But in each case, a clear path to upside exists. Quarterly results will tell us whether they are getting back on the right path.

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