Top Five Small-Cap Stocks

American Software and Boston Beer top the list.
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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 with 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.

Rated a buy since December 2005,

American Software

(AMSWA) - Get Report

develops software and services for enterprise management and collaborative supply chains. Strong EPS growth over the past year has helped the company's stock price appreciate faster than the

S&P 500

.

Barring a major bear market, the stock should continue to move higher. The company has no debt to speak of, and it maintains a quick ratio that demonstrates the ability to cover short-term cash needs. While American Software may harbor some minor weaknesses, they are unlikely to have a significant impact on results.

Boston Beer

(SAM) - Get Report

, brewer of Sam Adams and other alcoholic drinks, has been rated a buy since August 2005. The company shows strong revenue growth and has no debt to speak of. It maintains a quick ratio of 2.75, which demonstrates the ability to cover short-term cash needs.

Boston Beer has shown a pattern of EPS growth over the past two years, and TheStreet.com Ratings expects this to continue into the year ahead. The company's earnings strength has elevated its stock price to a level that is somewhat expensive compared with the rest of its industry. Given its other strengths, the higher price level is justified. The positives also outweigh the company's weak operating cash flow.

Dawson Geophysical

(DWSN) - Get Report

provides onshore seismic data acquisition services to oil and gas companies. It has been rated a buy since August 2005. The company's revenue increased nearly 50% in the second quarter of 2007 compared with the same period last year, and it has no debt to speak of. Net income increased by 605.45% in that time frame, dwarfing the industry average.

Dawson has shown a pattern of EPS growth in the last two years, a trend that should continue. Powered by these strengths, Dawson's stock price has grown by 127.64% in the 12 months prior to Aug. 3, making it relatively expensive compared with others in its industry. TheStreet.com Ratings believes the company's strengths justify its higher price level.

Electronic-components maker

Spectrum Control

(SPEC)

has been rated buy since August 2005. The company reported robust revenue growth for the second quarter of 2007, coming in higher than the industry average of 3.0%. Spectrum Control has a solid financial position with reasonable debt levels, solid stock price performance, an impressive record of earnings-per-share growth and compelling growth in net income. These strengths outweigh the company's low profit margins.

Telecom services provider

Atlantic Tele-Network

(ATNI) - Get Report

has been rated a buy since August 2005. Its revenue increased 17.9% in the second quarter compared with the same period last year, supported by strong sales across its business segments. Net income grew by 83.4% over the same timeframe, driven by margin expansion, lower interest expense and lower taxes. The company also provides a good dividend yield at current market prices.

The principal risks include termination of the company's exclusive right to provide wireline local and long-distance telephone services in Guyana as well as any adverse regulatory developments or economic conditions. Also, intensifying competition poses a significant threat to Atlantic Tele-Network's future prospects.