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 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.

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.

Our buy rating for Balchem has not changed since June 2003. The company again reported record quarterly results in net sales for the second quarter of fiscal 2008, achieving a 41.8% increase year-over-year due to both organic and acquisition growth. Balchem also reported record net earnings, which increased 16.2% when compared with the second quarter of fiscal 2007. As a result, the company's net earnings per diluted common share increased 13.6% to 25 cents per share from 22 cents per share in the second quarter of fiscal 2007. Additionally, Balchem reported that its balance sheet ratios and cash flow continued to be strong in the second quarter.

Management was pleased with the company's record results in the second quarter despite a difficult business environment. The company has worked to increase its global presence and overseas demand has helped offset the challenges of the U.S. market. Balchem expects rising raw material costs to continue affecting its financial results in the near term but management stated that appropriate steps would be taken to minimize the impact on operating margins and cash flow. Bear in mind, however, that global economic issues could still affect the company's results.

U.S. Physical Therapy ( USPH) operates approximately 350 clinics for outpatient physical and occupational therapy. These clinics provide preventive and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, as well as treatment for neurologically-related injuries and rehabilitation of injured workers. The company was founded in 1990 and currently operates in 42 states.

U.S. Physical Therapy has been rated a buy since April 2008. This rating is driven by a number of strengths, such as its strong growth in revenue, earnings per share (EPS) and income, as well its largely solid financial position and increasing cash flow from operations. For the second quarter of fiscal 2008, the company reported revenue growth of 33.6% year-over-year. This revenue growth helped the company achieve an EPS growth of 20.0% compared with the same quarter one year ago. The company has continued a pattern of positive EPS growth over the past year, and we feel that this trend should continue. Net income also increased, rising 24.0% from $2.30 million in the second quarter of fiscal 2007 to $2.86 million in the most-recent quarter. The company appears to manage its debt level well and demonstrates the ability to cover its short-term cash needs. Additionally, its net operating cash flow increased significantly in the second quarter, rising 251.85% to $6.06 million.

During the second quarter, U.S. Physical Therapy acquired nine new locations in Maryland and Pennsylvania and opened seven new clinics. The company also announced the formation of a new venture, OsteoArthritis Centers of America, for the treatment of osteoarthritis, degenerative joint disease and other musculoskeletal conditions. The first of these new centers opened in June in Wellington, Florida. Bear in mind that the company's future financial performance could be affected by general economic conditions, the availability of qualified physical and occupational therapists, and changes in Medicare guidelines, among other factors.

Quaker Chemical ( KWR) develops, produces and markets a broad range of formulated chemical specialty products for carious heavy industrial and manufacturing applications. In addition, the company offers and markets chemical management services. Quaker serves the automotive, steel finishing, heavy equipment, aerospace, tube and pipe and bearing manufacturing industries worldwide.

We have rated Quaker Chemical a buy since May 2007. On July 30, 2008, the company announced record net sales and net income for the second quarter of fiscal 2008. Net sales increased 15.0% year over year, primarily due to higher sales prices and favorable foreign exchange translations, while net income increased 4.0%. At 41 cents per share, earnings per diluted share were equal to that of the second quarter of fiscal 2007. Operating cash flow increased $14.3 million from a year ago, which led to a decrease in the company's net debt-to-total-capital ratio from 32.00% at the end of fiscal 2007 to 28.00% at the end of the most-recent quarter.

Management stated that Quaker Chemical should experience a solid growth year overall, despite the rising cost of raw materials. The company remains committed to making investments in key growth initiatives going forward. Bear in mind, however, that overall customer demand for products greatly impacts Quaker's financial performance, so any downturn in its customers' businesses could negatively impact results, as could any unexpected shutdown in customer production. Continued increases in the costs of raw materials and overall economic conditions worldwide could also affect Quaker's future performance.

Integral Systems ( ISYS) builds satellite ground systems and equipment for command and control, integration and testing, data processing and simulation. Founded in 1982, the company supports satellite missions for communications, science, meteorological and earth resource applications.

Integral Systems has been rated a buy since March 2005. For the third quarter of fiscal 2008, revenue improved 16.5% year over year, climbing to $41.8 million. Income from operations was reported as $7.1 million for the third quarter, compared with $5.3 million in the same quarter last year. The company also reported net income of $4.7 million, or 55 cents per diluted share, an increase from $3.8 million, or 34 cents per diluted share, reported in the third quarter of fiscal 2007. During the third quarter, both gross profit and operating income grew significantly in the space communications systems and government ground systems segments. The company has experienced a 34.2% increase in its year-to-date revenue when compared with the same period last year.

Management feels that the third quarter results reflect a solid financial performance and growth in the above-mentioned segments. Significant momentum and financial resources are expected to allow the company to focus on strategic growth initiatives going into the fourth quarter and the start of the next fiscal year. The company expects that such initiatives will continue to drive value for its shareholders. Earnings projections for fiscal 2008 were raised to approximately $2.15 per share.

American Physicians Service ( AMPH) 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.

American Physicians Service has been rated a buy since May 2003. While the company reported year-over-year declines in revenue and net earnings for the second quarter of fiscal 2008, it is important to bear in mind that its 2007 results included an extraordinary gain of $2.26 million in the second quarter from the acquisition of American Physicians Insurance Company, its medical malpractice subsidiary. Management indicated that the results from that subsidiary continue to be excellent and that the company exceeded the analysts' consensus estimate for the most recent quarter. In addition, management reported that the company showed a quarter-over-quarter increase in gross written premium, which it sees as an indication of continued strong performance.

Management acknowledged that, although its financial services business does not make up a significant portion of its overall operations since the acquisition of its insurance subsidiary, the company has not been immune to the general trend in the financial services sector and has experienced losses. However, the company has taken steps to limit costs, with the expectation that the resulting savings will have an impact on the rest of its fiscal year. The company was able to pay its fifth consecutive common stock dividend at the close of the second quarter. Although the company may harbor some minor weaknesses, we feel that they are unlikely to have a significant impact on future financial results.

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 TheStreet.com Ratings.

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