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.


Rated a buy since December 2005, American Software ( AMSWA) develops software and services for enterprise management and collaborative supply chains. Earnings growth of 65.0% over the past year has helped the company's stock price appreciate faster than the S&P 500.

Baring a major bear market, the stock should continue to move higher. The company has no debt to speak of, and 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.


AAON ( AAON), a manufacturer of air-conditioning and heating equipment, has been rated a buy since June 2005. AAON's strengths can be seen in multiple areas, such as revenue growth, a largely solid financial position with reasonable debt levels by most measures, an impressive record of EPS growth over the past two years, good cash flow from operations and solid stock price performance.

Low profit margins present the main risk to the buy rating.


A buy since May 2005, Waste Industries USA ( WWIN) provides solid-waste collection, transfer, disposal and recycling services to commercial, industrial and residential customers in six states in the Southeast. It has demonstrated improved operating margins due to pricing initiatives, higher productivity gains and increased internalization of waste into its landfills. The company also completed acquisitions in South Carolina and Georgia that will boost hauling revenue and strengthen its routes in these key markets.

The solid-waste industry is very competitive and requires considerable labor and capital resources, and it is subject to extensive federal, state and local environmental laws and regulations. For these reasons, any changes in the economic, legal or regulatory environment could hurt Waste Industries' future financial performance.


Multi-Color ( LABL) supplies decorative labels and packaging services to consumer product and food and beverage companies, retailers and container manufacturers. The company has been rated a buy since February 2006. Multi-Color's net income has increased significantly, its stock price has appreciated notably and there is good potential that it will continue to increase. The company has demonstrated a pattern of positive EPS growth over the past two years, and TheStreet.com Ratings expects this to continue in the coming year. These strengths outweigh the company's low profit margins.


Consolidated Water ( CWCO), which operates seawater desalination plants and water distribution systems, has been rated a buy since December. The company has a largely solid financial position with reasonable debt levels and good cash flow from operations. Its fist quarter revenue rose 37.8% on the year, and its debt-to-equity ratio of 0.22 is below that of the industry average. This suggests very successful management of debt levels.

The company's strong revenue growth has contributed to a steady track record of EPS growth over the past two years. This has helped Consolidated Water's stock price appreciate by 28.46% in the year prior to July 13. While this price level is somewhat expensive compared with the rest of its industry, the company's strengths justify the higher price level. Its positives also outweigh a somewhat disappointing return on equity.

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