Each weekday, TheStreet.com Ratings compiles a list of the top 10 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, we look at small-cap stocks. These are stocks of companies that have market capitalizations of between $50 million and $500 million and rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.

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

Up first today is Preferred Bank ( PFBC), which has 10 full-service branches focused on California's large Chinese-American population. The company's stock has earned a buy rating since December 2005. The stock should outperform most stocks we rate on the basis of its steady EPS growth, positive increases in net income, compelling return on equity and solid stock performance.

The stock is relatively more expensive than its peers. However, Preferred Bank shows no glaring weaknesses, and its strong financial performance justifies its higher price level.


KMG Chemicals ( KMGB), rated a buy since March 2005, makes specialty chemicals for about 135 clients. The company shows impressive EPS growth, a low debt-to-equity ratio, outstanding net income growth and strong stock performance.

These positives outweigh KMG's weak operating cash flow.


EnergySouth ( ENSI), a holding company concentrated on the purchase, distribution, storage and transportation of natural gas in southwest Alabama, 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 remarkable 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, and the stock merits a buy rating.


Riverview Bancorp ( RVSB), the parent company of Vancouver-based Riverview Community Bank, has been rated a buy since March 2005. The company's strengths include its solid stock performance, impressive record of EPS growth and expanding profit margins.

Although the company may harbor some minor weaknesses, they are unlikely to hurt results.


Tessco Technologies ( TESS) is a distributor of wireless products. It has been rated a buy since March 2005. Among the company's strengths include a steady pattern of EPS growth, good cash flow from operations, impressive stock performance and robust revenue growth.

These strengths outweigh the company's low profit margins.


Oyo Geospace ( OYOG) designs, manufactures and sells seismic data equipment, and has had a buy rating since February 2006. The company has several positive qualities, including robust revenue growth, expanding profit margins, solid return on equity and notable operating cash flow increases.

Although no company is without its minor weaknesses, Oyo displays no sign that its positive performance will slow.


Property and casualty insurance provider Meadowbrook Insurance Group ( MIG) has been rated a buy since March 2005. The company has demonstrated a pattern of positive EPS growth over the past two years, has improved its return on equity and has enjoyed a significant increase in its stock price.

These strengths outweigh the company's low profit margins.


Dynamex ( DDMX)provides same-day delivery and logistics services in the U.S. and Canada. It has been rated a buy since March 2005.

The company's revenue growth has slightly outpaced the industry average, and it appears to have trickled down to the company's bottom line, improving the EPS. Dynamex's debt-to-equity ratio is very low at 0.05, implying that there has been very successful management of debt levels.

These strengths outweigh the fact that the company shows low profit margins.


Cherokee ( CHKE) markets and licenses the Cherokee, Sideout and Carole Little brands -- as well as related trademarks and other brands it owns or represents -- 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 impressive stock performance, leaving it poised for EPS growth in the upcoming year.

These strengths outweigh the company's weak operating cash flow.


Health care services provider HMS Holdings ( HMSY) has been rated a buy since March 2005. The company's strengths include stellar revenue growth, a very low debt-to-equity ratio, notable increases in net operating cash flow and outstanding stock performance.

These strengths outweigh HMS' subpar net income growth.


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