STOCK PICKS: Top 5 Small-Caps for Sept. 19.

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.

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. Choline, a vitamin-B complex, plays a vital role in the metabolism of fat and the building and maintaining of cell structures.

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.

American Ecology ( ECOL) 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.

We have rated American Ecology a buy since October 2005. The company reported record operating results for the second quarter of fiscal 2008, as operating income rose 20% year over year to $9.8 million. Net income also climbed 20%, reaching $6.1 million compared with $5.1 million in the same quarter one year prior, due to strong growth in disposal service revenue as the Idaho, Nevada, and Texas waste facilities increased the amount of waste disposed by 18% year over year. However, lower transportation revenue partially offset the increase in disposal service revenue. American Ecology also reported a 17% increase in gross profit for the second quarter and the company had no debt at the quarter end. In addition, the company declared a quarterly dividend of 18 cents per common share, which was a 20% increase from the prior quarterly dividend of 15 cents per common share.

Looking ahead, the company announced that it expects to reach or possibly surpass its previously announced fiscal 2008 earnings guidance of $1.17 to $1.23 a diluted share. Management cautioned that the company will require a strong second-half contribution from the thermal desorption recycling service that was initiated in late June, along with solid even business results if it is to exceed its guidance range.

Met-Pro ( MPR) manufactures and sells product recovery and pollution control equipment for purification of air and liquids, as well as fluid handling equipment for corrosive, abrasive and high temperature liquids.

Met-Pro has been rated a buy since March 2007, based on such strengths as the company's revenue growth, increase in net income, and largely solid financial position. For the second quarter of fiscal 2008, the company reported its highest second quarter results in company history in sales, net income, and earnings per share. Net income increased 40.3% year over year, rising from $1.93 million to $2.70 million. Net sales climbed to $28.15 million from $26.10 million in the second quarter of fiscal 2007. Earnings per share rose from 13 cents to 18 cents. Revenue also increased slightly, improving 7.8%. Met-Pro's debt-to-equity ratio is very low at 0.06 and its quick ratio is 3.21, implying that the company has successfully managed its debt levels and is able to cover its short-term cash needs.

Management announced that it was pleased with quarterly results that it felt clearly demonstrated a strong global demand for Met-Pro's products. While the company's stock price has risen over the last year, driven by its strong earnings growth, we feel that Met-Pro's strengths justify this higher price level, even though the stock is now somewhat expensive compared to others in its industry.

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.

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 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.

National Research ( NCRI) assists the health care industry in the U.S. and Canada track performance at a variety of levels.

We have rated National Research a buy since November 2006. Our rating is based on a variety of strengths, including the company's expanding profit margins, good cash flow from operations, and largely solid financial position. For the second quarter of fiscal 2008, net operating cash flow significantly increased by 58.91% when compared to the same quarter last year. Return on equity also improved slightly year-over-year. The company's debt-to-equity ratio is very low at 0.08, implying successful management of debt levels. While National Research reported flat earnings per share for the second quarter versus the year-earlier period, and has a recent history of volatile earnings, we feel it is poised for EPS growth in the coming year.

Although no company is perfect, we do not currently detect any significant weaknesses that are likely to detract from the generally positive outlook for this company.

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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