Each business day, 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 is based on data from the close of the June 18 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. Balchem ( BCPC) 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 reported record quarterly results in net sales and net earnings for the first quarter of fiscal 2008. Balchem achieved net sales of $56.9 million, reflecting a 34.9% increase compared to the same quarter one year prior. Net earnings increased 34.9% year-over-year to $4.6 million. As a result, the company's net earnings per diluted common share increased 31.6% to 25 cents a share from 19 cents a share in the first quarter of 2007. Management reported that the integration of several acquisitions made during fiscal 2007 have gone well, and stated that the first quarter results did not yet reflect the company's full expectations for those acquisitions. Additionally, management noted again that rising raw material costs are expected to remain a challenge for Balchem in the near term. While the company has taken pricing steps to counteract the effects of these increased input costs, the actions taken in the first quarter did not offset all the cost increases, primarily due to timing. Overall, management expects the remainder of fiscal 2008 to continue to bring double digit increases in sales and earnings. Bear in mind, however, that global economic issues could affect the company's results. Key Technology ( KTEC) designs, manufactures, sells and services process automation systems that integrate electro-optical inspection and sorting, specialized conveying, and product preparation equipment. Automated inspection systems are used in a various applications to detect and eliminate defects, most often during the processing of raw and semi-finished products.
Key Technology has been rated a buy since February 2007. The company's strengths can be seen in a variety of areas, including its growth in revenue, net income, and earnings per share. For the second quarter of fiscal 2008, the company's revenue rose by 31.3% year-over-year. This appears to have helped boost earnings per share, which improved significantly from 11 cents per share in the second quarter of fiscal 2007 to 22 cents a share in the most recent quarter. The net income increased 96.4% when compared to the same quarter one year prior, rising to $1.19 million from $610,000. An additional sign of strength for the company is that its current return on equity improved from the same quarter of fiscal 2007. The recent surge in commodity costs is a challenge to the machinery industry. This could affect Key Technology's results in the future. However, the company reported its best first half bookings, shipments, and earnings performance in its history in this fiscal year, and management expects that recently released new products, such as Manta and the Pulse Scrubber, will contribute to the company's orders and shipments for the second half of fiscal 2008. Exponent ( EXPO) is a science and engineering consulting firm whose multidisciplinary team of scientists, physicians, engineers and business and regulatory consultants brings together more than 70 different technical disciplines to solve complicated issues facing industry and businesses. Its professional staff can perform in-depth scientific research and analysis or very rapid-response evaluations to provide clients with the critical information they need.
Exponent has been rated a buy since November 2001. An impressive record of earnings per share growth and compelling growth in net income are among several of the company's strengths. For the first quarter of fiscal 2008, revenue rose by 15.1% year-over-year. Net income for the same period increased by 25.6%, rising from $5.06 million a year ago to $6.35 million. Exponent reported that earnings per share (EPS) improved 29.0% from 31 cents in the first quarter of 2007 to 40 cents in the most recent quarter. In fact, the company has demonstrated a pattern of positive EPS growth over the past two years. Finally, return on equity improved slightly when compared to the same quarter one year prior. Driven by important factors such as strong earnings growth of 29.03%, this stock has surged 57.75% over the past year. We feel that Exponent should continue to climb despite its already impressive performance. The company believes that it remains well positioned to capture new opportunities for growth as it moves further into fiscal 2008. For the full year, management expects to report high single-digit to low double-digit growth in revenue as a result of the company's plans to pursue strategic opportunities. However, Exponent's future results could be negatively impacted by any disruptive changes in both general and industry-specific economic conditions and the effects of tort reform and government regulation of the company's business. Stepan ( SCL) is a global manufacturer that produces specialty and intermediate chemicals. These products are sold to other manufacturers to be made into a variety of end products. The company operates in three business segments: surfactants, polymers, and specialty products. Surfactants are the key products in consumer and industrial cleaning products, creating the foaming and cleaning properties of products such as toothpastes, detergents, and shampoos. Polymers such as phthalic anhydride and polyols are used in plastics, building materials, and refrigeration systems, as well as in coating, adhesive, sealant, and elastomer applications. Stepan also produces custom-made specialty products to meet the individual needs of clients. These chemicals include food flavorings and other products used in the food and pharmaceutical industries.
We have rated Stepan a buy since May 2007, based on strengths such as its robust revenue growth, solid stock price performance, and compelling growth in net income. For the first quarter of fiscal 2008, Stepan's revenues rose by 21.9% year-over-year. This in turn appears to have helped boost earnings per share, which increased from 56 cents in the first quarter of fiscal 2007 to 85 cents in the most recent quarter. Net income grew 53.8% when compared to the same quarter a year ago, rising from $5.69 million to $8.75 million. Stepan also reported that its gross profit increased 32% due to a significant improvement in earnings from its surfactants business. Management announced that it was pleased with the company's progress in the first quarter as efforts to improve the customer and product mix contributed to the increased profitability of Stepan's global surfactant business. Looking forward, management anticipates continued profit growth compared to last year, despite their concerns about the potential impacts of a recession. Pericom Semiconductor ( PSEM) designs, develops and markets high-performance interface integrated circuits (ICs) and frequency control products (FCPs) used in advanced electronic systems. Interface ICs transfer, route, and time electrical signals among a system's microprocessor, memory, and various peripherals and between interconnected systems. FCPs are electronic components used as time and frequency clocks in electronic products ranging from computers and telecommunications switching equipment to cell phones and televisions. Pericom's interface products increase system bandwidth. We have rated Pericom a buy since February 2007. The company reported that its earnings for the third quarter of fiscal 2008 surged 58.4% year-over-year, bolstered by strong demand for its products. Aided by strong demand for products used in digital video high-performance PCs and servers, total revenue for the quarter climbed 36.4% to $41.18 million, compared to $30.18 million in the prior year quarter. Net income for the quarter increased to $4.14 million, or 16 cents a share, from $2.61 million, or 10 cents a share, in the third quarter of 2007. The company expanded its Digital Video solutions by launching two new switches that allow next generation computing platforms using dual function graphics ports to be switched between either of the high speed protocols. Pericom also launched three new signal conditioning products and expanded its Timing portfolio.
Looking ahead, management expects revenue for the fourth quarter of fiscal 2008 to be in the range of $42 million to $43.2 million, with gross margin expected to be in the range of 36.8% to 37.8%. In addition, the company expects its operating expenses to be between $10.80 million and $11 million. However, weak demand for semiconductors, higher stock option expenses, and the highly competitive market could restrict Pericom's future growth. 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.