Top Five Small-Cap Stocks

Martin Midstream and Procentury lead off this week's list of the highest-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 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

Martin Midstream

(MMLP) - Get Report

, which 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 somewhat disappointing return on equity.

Procentury Corp.

(PROS) - Get Report

markets and underwrites general liability, commercial liability and multi-peril liability for small- and mid-sized 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.

Rated a buy since December 2005,

American Software

(AMSWA) - Get Report

develops, markets and offers support of software used in enterprise management and collaborative supply chain solutions. The company has displayed impressive stock price appreciation, a pattern of positive EPS growth over the past 12 months and no debt.

Although the company may harbor some minor weaknesses, they are unlikely to have a significant impact on results.

Cherokee

(CHKE)

markets, licenses and manages brand names and related trademarks. It has been rated a buy since May 2005.

The company's strengths include notable stock price appreciation, net income growth that has significantly exceeded that of the

S&P 500

and its industry, and improved return on equity. While no company is perfect, it does not currently show any significant weaknesses likely to detract from the generally positive outlook.

Property and casualty insurance provider

Meadowbrook Insurance Group

(MIG)

has been rated a buy since May 2005. The company has demonstrated revenue growth, a pattern of positive EPS growth over the past two years, improved return on equity and has enjoyed a significant increase in its stock price.

These strengths outweigh the company's low profit margins.