TheStreet.com Ratings: Top Five Small-Cap Stocks

Procentury and Martin Midstream lead off this week's rankings of the top-rated stocks.
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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 TheStreet.com Ratings' 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

Procentury Corp.

(PROS) - Get Report

, which markets and underwrites general liability, commercial liability and multi-peril liability for small and midsized businesses. It has been rated a buy since October 2006.

The rating reflects a number of Procentury's strengths, including strong revenue growth, a very low debt-to-equity ratio and a pattern of positive EPS growth over the past two years. These strengths outweigh the company's low profit margins.

Martin Midstream

(MMLP) - Get Report

provides marine transportation, terminalling, distribution and midstream logistical services for producers and suppliers of hydrocarbon products and byproducts. It has been rated a buy since June 2005.

The company shows impressive revenue growth, significantly increased net operating cash flow and strong stock price performance. These positives outweigh concerns about Martin Midstream's growth in net income.

EnergySouth

(ENSI)

is a holding company concentrated on the purchase, distribution, storage and transportation of natural gas in southwest Alabama. EnergySouth has been rated a buy since March 2005. Its strengths include strong net operating cash flow, a reasonable debt-to-equity ratio beneath that of the industry average and notable stock price growth. Its stock is expensive relative to its peers, but given its performance, the higher price is justified.

Though EnergySouth shows a somewhat disappointing return on equity, its overall financial strengths outweigh its weaknesses.

Cherokee

(CHKE)

markets and licenses the Cherokee, Sideout and Carole Little brands -- as well as related trademarks and other brands -- for family apparel, fashion accessories and footwear, home furnishings and recreational products. It has been rated a buy since March 2005.

The company's strengths include notable return on equity, a largely solid financial position with reasonable debt levels by most measures and expanding return on equity. It is poised for EPS growth in the upcoming year. These strengths outweigh the company's weak operating cash flow.

Medtox Scientific

(MTOX)

, which provides forensic and clinical laboratory services, has been rated a buy since October 2005. The company has shown impressive stock price appreciation, a notable return on equity and a strong gross profit margin.

Although no company is perfect, there are currently no significant weaknesses that are likely to detract from the generally positive outlook.