Top 5 Small-Cap Stocks for March 6

Each business day, TheStreet.com Ratings 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 -- 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.

NCI ( NCIT) is a provider of information technology services and solutions to U.S. federal government agencies. The company focuses on designing, implementing, maintaining, and upgrading IT systems and networks. NCI has been rated a buy since February 2008 based on its healthy growth in revenue and net income, solid stock price performance, impressive record of earnings-per-share growth, and return on equity.

For the fourth quarter of fiscal 2008, the company reported that its revenue rose 15.2% year over year, slightly outpacing the industry average of 13.5%. This growth appears to have helped boost EPS, which rose 44% when compared to the same quarter last year. The company's EPS growth is a continuation of a pattern of positive EPS growth over the past two years. Net income also improved, increasing 48.2% from $3.3 million to $5 million. Return on equity improved slightly when compared to a year ago, and can therefore be considered a modest strength for NCI. In addition, NCI's stock price has surged 89.7% over the past year, due to strong earnings growth and other key factors.

Management stated that it felt NCI had great results for fiscal 2008, remaining on track with its strategic plan. The company expects further growth in fiscal 2009 due to new business won in 2008, such as the $173 million ITES-2S task order with the Army National Guard and Air National Guard awarded to NCI in December. Looking ahead, the company expects first quarter 2009 EPS in the range of 31 cents to 33 cents per share, on revenue of $102 million to $107 million. Although the company shows weak operating cash flow, we believe that the strengths detailed above outweigh any potential weakness at this time.

Shenandoah Telecommunications ( SHEN) provides regulated and unregulated telecommunications services, including local exchange telephone services, wireless personal communications services, cable television, video, and Internet and data services, long distance, and other services through its wholly owned subsidiaries. The company has been rated a buy since April 2008 on the basis of its efficiency, solvency, and growth in net income, revenue, and EPS, as well as its solid stock price performance.

For the fourth quarter of fiscal 2008, Shenandoah reported revenue growth of 7.3% year over year. This growth slightly outpaced the industry average and appears to have trickled down to the company's bottom line, as EPS improved 21.1% when compared to the prior year's quarter. Net income surged 51.1%, rising from $3.7 million to $5.6 million. Based on a very low debt-to-equity ratio of 0.3, it appears that Shenandoah has been very successful in managing its debt levels.

Management announced that it was pleased with what it considered to be excellent financial results in fiscal 2008. It appears that investors have begun to recognize the types of positive factors mentioned here, as the company's shares been driven up by a sharp 30.9% over the past year. This puts the stock at a premium valuation compared to the rest of its industry, but we feel that the company's strengths justify the higher price level at this time.

Emergency Medical Services ( EMS) provides outsourced emergency department staffing and management services to hospitals under the brand EmCare and ambulance services in 40 states under the brand American Medical Response. We upgraded EMSC to a buy in August 2008. Our rating is supported by the company's revenue and net income growth, impressive record of EPS growth, and good cash flow from operations.

For the fourth quarter of fiscal 2008, EMSC reported that its revenue rose 10.5% year over year, just slightly higher than the industry average of 10.3%. This growth appears to have helped boost EPS, which improved significantly from 31 cents to 48 cents and continued a pattern of positive EPS growth over the past two years. Net income increased 55.5% when compared to the same quarter last year, rising from $13.4 million to $20.9 million. Net operating cash flow also increased considerably, rising 98.3% to $81 million. In addition, the company's stock price has surged 32.5% over the past year, powered by earnings growth and other key factors.

Management stated that fiscal 2008 was a successful year for EMSC, as the company expanded its core businesses and entered new markets. Looking ahead, the company believes that it is well-positioned for growth in fiscal 2009, expecting full-year diluted EPS in the range of $2.05 to $2.15.

American Physicians Capital ( ACAP) is an insurance holding company. Its primary focus is medical professional liability insurance, which it writes through its subsidiary, American Physicians Assurance Corporation. Our buy rating for American Physicians has not changed since November 2004 and is based on the company's largely solid financial rating, good cash flow from operations, expanding profit margins, solid stock price performance, and notable return on equity.

For the fourth quarter of fiscal 2008, the company's net operating cash flow increased significantly, rising 138.8% year over year to $15.7 million. A very low debt-to-equity ratio of 0.1 implies that the company has successfully managed its debt levels. American Physicians Capital has a gross profit margin of 40.8%, which we consider strong, while its net profit margin of 29.3% significantly outperformed against the industry. Although the company's revenue dropped 9.7% when compared to the same quarter of last year, the company's bottom was not hurt, as evidenced by increasing EPS results. EPS increased from $1.19 to $1.24 in the fourth quarter.

Looking ahead, management stated that it expects the company to exceed EPS of $4.25 in fiscal 2009 if current trends in frequency, severity, and pricing remain stable in the company's book of business. Although the company has had somewhat weak EPS growth recently, we feel that the strengths detailed above outweigh any potential weakness at this time.

Neogen ( NEOG) and its subsidiaries develop, manufacture and market products dedicated to food and animal safety, such as diagnostic test kits and complementary products, such as dehydrated culture material. Our buy rating for Neogen has not changed since February 2003. This rating is based on strengths like the company's revenue and net income growth, largely solid financial position, impressive record of EPS growth, and solid stock price performance.

For the second quarter of fiscal 2009, Neogen reported revenue growth that slightly outpaced the industry average, rising 14.6% year over year. This growth appears to have helped boost EPS, which improved 18.2% in the most recent quarter from 22 cents to 26 cents. Net income growth of 19.9% set a quarterly record for the company. The company has a debt-to-equity ratio of zero, as it has no debt to speak of; we consider this to be a relatively favorable sign of strength for the company. In addition, Neogen maintains a quick ratio of 2.9, which clearly indicates an ability to cover short-term cash needs.

Management stated that the state of the economy has impacted the company's results, but was clearly proud of the company's ability to find opportunities for growth despite the challenges. While Neogen's stock price has been driven to a premium compared to its industry over the past year, we feel that its strengths justify the higher price level at this time, despite the company's weak operating cash flow.

Our quantitative rating, which can be viewed for any stock through our stock screener stock rating screener, 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.

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