TSC Ratings TheStreet.com Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Each business day, we compile 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 $50 million to $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 or 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 (IT) 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 (EPS) growth, and sound 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 $0.31 to $0.33, 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 weaknesses at this time.

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, strong 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 low debt-to-equity ratio of 0.1 implies that the company has successfully managed its debt. American Physicians Capital has a gross profit margin of 40.80%, 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-line was not hurt, as evidenced by increasing EPS. EPS jumped 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 weaknesses 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 (AMR). 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 strong 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.

Applied Signal Technology ( APSG) provides intelligence, surveillance, and reconnaissance for the defense, intelligence, and homeland security markets. It has been rated a buy since May 2008 on the basis of its growth, solid stock price performance, and largely solid financial position.

For the first quarter of fiscal 2009, Applied Signal Technology reported that its revenue improved slightly by 6.2% year-over-year. Aided by this growth, EPS improved significantly, rising from 12 cents to 27 cents. Net income also soared, rising 136.2% year-over-year from $1.5 million to $3.5 million. Strong earnings growth appears to have been an important factor in driving up the company's stock, which surged 65.2% over the past year. Additionally, the company has a very low debt-to-equity ratio of 0.04, which implies that it has successfully managed its debt levels. It also appears to be able to cover its short-term cash needs, as indicated by a quick ratio of 3.9.

Management was pleased with what it said was a strong quarter, with results driven by sales increases and changes to its operating structure. The company considers the first quarter a solid foundation for the remainder of fiscal 2009. While the company shows weak operating cash flow, we feel that the strengths detailed above outweigh any potential weakness at this time.

Lincoln Educational Services ( LINC) is a for-profit provider of career-oriented, post-secondary education, offering degree and diploma programs in four areas of study: automotive technology, allied health, skilled trades, and business and information technology. We have rated the stock a buy since October 2008 because of the company's revenue growth, expanding margins, and improving bottom-line.

For the fourth quarter of fiscal 2008, Lincoln achieved record revenue, which soared 18.9% year-over-year. This growth was fueled by the acquisition of Briarwood College and an increase in average student population. Revenue growth appears to have helped boost EPS, which improved 32.4% when compared to the same quarter a year ago. Net income also increased, rising 32.7% from $9.6 million to $12.8 million. Gross profit margin improved 178 basis points to 67.5%, while operating margin expanded 95 basis points to 19.8%. Lincoln's cash and cash equivalents more than quadrupled to $15.2 million, improving the company's cash position. In addition, the company has a low debt-to-equity ratio of 0.06, indicating that it has been successful at managing its debt.

Management was pleased with both the fourth quarter and year-end results for fiscal 2008. Looking ahead to the first quarter of fiscal 2009, Lincoln anticipates EPS in the range of 5 cents to 7 cents on revenue of $112 million to $114 million. The company does face challenges from rising expenses, and any inability to attract new students could restrict the company's financials going forward. Overall, however, we do not see any significant weaknesses that are likely to detract from this company's generally positive outlook.

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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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