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Top Five Small-Cap Stocks

LSI Industries, CAM Commerce Solutions in the lead.

Each weekday, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the

Ratings section of our Web site.

This list, updated daily, is based on data from the close of the previous trading session. Today, small-cap stocks are in the spotlight. These are stocks of companies that have market capitalizations of between $50 million and $500 million that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.

The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They are ordered by their potential to appreciate.

Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans.

Today begins with

LSI Industries

(LYTS) - Get Report

, which provides corporate visual image solutions to the petroleum/convenience-store industry. It has been rated a buy since September 2005. The company's revenue growth outpaces the industry average, and it has no debt to speak of. LSI's net income increased by 56.3% in the fourth quarter of its fiscal 2007 compared with the same quarter one year ago, rising to $6.96 million from $4.45 million. These strengths outweigh the company's low profit margins.

CAM Commerce Solutions

(CADA)

engages in the design, development, marketing, installation and servicing of integrated retailing and payment processing for brick-and-mortar and e-commerce businesses. It has been rated a buy since September 2005. The company's EPS improved by 87.50% in the third quarter of 2007 compared with the same period last year, and it has no debt to speak of. Although the company may harbor some minor weaknesses, they are unlikely to have a significant impact on results.

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The

Gorman-Rupp Company

(GRC) - Get Report

designs, manufactures and sells pumps and related fluid control equipment. It has been rated a buy since November 2005. The company's revenue rose by 17.3% in the second quarter compared with the same period last year, outpacing the industry average of 5.1%. Gorman-Rupp has no debt to speak of, and posts a quick ratio of 2.09, which shows the ability to cover short-term liquidity needs. Earnings increased to 49 cents a share in the second quarter from 42 cents a share in the same period last year. The company has demonstrated a pattern of positive EPS growth over the past two years. These strengths outweigh the company's low profit margins.

Property and casualty insurance firm

Hallmark Financial Services

(HALL) - Get Report

has been rated a buy since December 2006. The company's revenue growth of 45.7% in the second quarter compared with the same period last year exceeded the industry average, while its debt-to-equity ratio of 0.27 is below that of the industry average. Hallmark's net income swung to a profit of $8.82 million from a loss of $2.84 million over the same timeframe.

The company's stock price has appreciated by 35.66% in the 12 months since Sept. 28. And while any stock can fall in a major bear market, it should continue to move higher. These strengths outweigh the company's low profit margins.

Axsys Technologies

(AXYS)

, which makes optical system components, has been rated a buy since August 2005. With the threat of terrorism across the world, the need for advanced technology to secure borders is growing. However, only a fraction of more than 150,000 miles of international borders are equipped with the latest surveillance technology. This provides the company with huge business potential.

The buy rating is not risk-free. Axsys' success is largely dependent on its ability to anticipate and respond rapidly to changing technological developments in the industry. Moreover, a reduction or delay in the purchase of precision optical solutions by the U.S. government could have an impact on financial performance.