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.

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.

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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 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 per 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.

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.

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.

U.S. Physical Therapy ( USPH) operates about 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 ( NRCI) assists the healthcare industry in the U.S. and Canada track performance at a variety of levels. The company provides survey-based performance management, analysis, tracking and improvement and educational services and develops tools that enable healthcare organizations to obtain performance measurement information necessary to comply with industry and regulatory standards and to improve their business practices.

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 with 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.

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 Co., 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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