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Top Five Small-Cap Stocks

American Ecology, Exactech, Balchem, American Physicians Service Group and Standard Parking are all on top.

Each business day, 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 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.

American Ecology

(ECOL) - Get US Ecology Inc. Report

is one of the nation's oldest providers of radioactive, hazardous and industrial waste management services. The company's customers are commercial and government entities, such as nuclear power plants, medical and academic institutions, steel mills, refineries and chemical production facilities. A significant portion of the company's revenue from operating disposal facilities -- those that actively receive and treat waste materials -- comes from discrete, one-time cleanup projects, which may span weeks, months or years depending on project scope.

American Ecology's Non-Operating Disposal Facilities segment consists of facilities that no longer receive waste materials but continue to be monitored and maintained as part of the treatment of previously received waste materials. Other services include such services as waste stabilization, encapsulation and chemical oxidation.

We have rated American Ecology a buy since October 2005. Strengths such as revenue growth, a largely solid financial position and good cash flow from operations influenced this rating. For the fourth quarter of fiscal 2007, American Ecology's revenues rose 21% year over year. This growth appears to have trickled down the bottom line, improving earnings per share (EPS) 29% in the same period. In fact, the company has demonstrated a pattern of positive EPS growth over the past two years. A slight improvement in return on equity can be seen as a modest strength for the company. Finally, while total debt has increased slightly, it is still at an almost negligible level.

We feel that the company's strengths outweigh its low profit margins. Furthermore, for 2008, the market expects an improvement in full-year EPS to $1.20 from $1.07 in 2007. Finally, the stock has surged 29% over the past year, and while almost any stock can fall in a broad market decline, we believe that American Ecology should continue to move higher despite a very nice gain in the past year.



develops, markets, distributes and sells orthopedic implant devices, related surgical instrumentation and biologic materials to hospitals and physicians in the U.S. and 27 other countries. The company produces knee systems and other joint-replacement implant products. Its revenues derive primarily from sales of its knee- and hip-joint replacement systems; however, revenues from the worldwide distribution of biologic materials have increased as a percentage of total revenue.

Exactech has been rated a buy since March 2007, primarily because of a strong financial performance, higher guidance and a currently favorable industry trend. In the third quarter of 2007, net sales increased 23% year over year to $30 million, largely because of the success of new products and continued growth from existing products.

Exactech performed in both domestic and international markets on the revenue front; the company reported a 24% increase in revenue from the domestic market and a 21% increase in revenue from international markets. Management raised its fiscal year 2007 guidance and now expects revenue for 2007 between $120.5 million and $122.5 million, with earnings per share in the range of 78 cents to 79 cents.

We expect Exactech to benefit from its continued innovation and expansion. The company remains focused on improving its existing line of business, and it is also awaiting approval on several new products in both the U.S. and overseas markets. However, the company is highly exposed to foreign-exchange risks with its increasing share of global business, and stiff government regulation could negatively affect product approvals and therefore operating results.

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(BCPC) - Get Balchem Corporation Report

develops, manufactures and markets specialty performance ingredients and products for the food, feed and mechanical sterilization industries. Balchem produces choline products for both human and animal consumption. Choline, a vitamin-B complex, plays a vital role in the metabolism of fat and the building and maintaining of cell structures. Choline deficiency can result in reduced growth and perosis (a disease characterized by a deformity of the leg joint) in poultry and fatty liver, kidney necrosis and general poor health in swine, among other symptoms. In humans, choline is recognized as playing a key role in the structural integrity of cell membranes, the processing of dietary fat, reproductive development, and neural functions such as memory and muscle function.

Balchem also produces encapsulated performance ingredients for use throughout the food and animal-health industries in end products such as baked goods, refrigerated and frozen dough, processed meats, seasoning blends and confections. These performance ingredients are used to enhance nutritional fortification and improve shelf life of prepared products.

Our buy rating for Balchem has not changed since June 2003. The company's strengths include impressive revenue growth, solid stock-price performance and net income growth. For the fourth quarter of fiscal 2007, revenue more than doubled year over year. This growth appears to have trickled down to the company's bottom line, improving earnings per share (EPS). Balchem reported 27% growth in EPS in the most recent quarter. Net income also increased by 29% from the year-ago quarter, rising from $3.2 million to $4.2 million. Powered by strong earnings growth and other driving factors, this stock has surged 28% over the past year.

For fiscal 2007, management was pleased with the integrations of two earlier acquisitions, Chinook and Akzo, and expects those acquisitions to continue to contribute positively to earnings. However, management also expects rising raw-material costs to be a challenge in the near term. While the company has taken pricing steps to counteract the effects of these increased input costs, such actions in the fourth quarter were not enough to offset them completely. Additional price increases were made effective in January 2008, and management therefore expects fiscal 2008 to see continuing improvements in sales and earnings, while cautioning that global economic issues could affect the company's results.

American Physicians Service Group

(AMPH) - Get Amphastar Pharmaceuticals Inc. Report

is an insurance and financial services firm. Its subsidiaries and affiliates provide medical malpractice insurance as well as brokerage and investment services to institutions and high-net-worth individuals. One subsidiary, APS Financial, also provides portfolio accounting, analysis and other services to insurance companies, banks and public funds. Other subsidiaries include APS Clearing, Asset Management, APS Insurance Services and APS Facilities Management. A final subsidiary, American Physicians Insurance Company, is a former client that was acquired in April 2007 and is now a wholly-owned subsidiary. American Physicians Services Group has been in business since 1975 and has been publicly traded on the


since 1983.

Because of such strengths as robust revenue growth, a largely solid financial position, net income growth and solid stock-price performance, American Physicians Service has been rated a buy since May 2003. For the fourth quarter of fiscal 2007, revenue rose to $22.8 million from $10.8 million in 2006. Net earnings were reported at $6 million, or 82 cents a share, up from. $1.6 million, or 56 cents a share, a year ago.

Even the best stocks can fall in a down market, but we feel that this stock has good upside potential in any other market environment.

Standard Parking


is a provider of parking facility management services throughout the U.S. and Canada. The company provides on-site management services at multilevel and surface parking facilities for all major markets of the parking industry. The company manages parking-related and shuttle bus operations serving airports throughout the U.S, including Chicago O'Hare International Airport, Cleveland Hopkins International Airport, and Dallas-Fort Worth International Airport. In addition, Standard Parking's client list includes some of the nation's largest private and public owners, managers and developers of major office buildings, residential properties, commercial properties, shopping centers and other retail properties, sports and special event complexes, hotels and hospitals and medical centers.

The company also provides related ancillary services, such as valet parking services at urban and airport locations, as well as on-street parking enforcement and meter collection services for municipal clients. Parking properties are operated through two types of arrangements: management contracts and leases. Standard Parking does not own any parking facilities and, as a result, it assumes few of the risks of real estate ownership.

Our buy rating for Standard Parking has not changed since November 2006. For the fourth quarter of fiscal 2007, revenue increased 10% year over year to $75.2 million, due primarily to 24% growth in management contract revenue. Gross profit also increased 19%. For full year 2007, the company reported revenue and gross profit growth of 3% and 13%, respectively. Operating income also increased 23%. The company completed four acquisitions during the year, along with $22.1 million worth of share repurchases.

During the fourth quarter, the company completed several new agreements, including: a multi-year contract to provide parking management, valet, and special event services at Yankee Stadium; a contract to manage and staff Alatus Partners' parking operation in Minneapolis; and, the expansion of existing relationships with the New Jersey Transit Authority and General Growth Properties.

Looking ahead to 2008, management expects earnings per share to range from 90 cents to 95 cents for the year. While the company has exhibited relatively poor debt management in the past, we feel that strengths such as solid stock performance and growth in earnings per share outweigh this and any other weaknesses.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could affect the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

For those reasons, we believe that a rating alone cannot tell the whole story. and that it should be part of an investor's overall research.

This article was written by a staff member of Ratings.