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 one of 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.

First Financial ( THFF), through its subsidiaries, provides various financial services in Indiana and Illinois. The company offers a range of deposit products, including demand deposits, savings deposits, time deposits and certificates of deposit. We have rated the stock a buy since April 5, 2007.

The company's strengths can be seen in multiple areas, such as its increase in net income, expanding profit margins, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value. Net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the commercial banks industry. Net income increased by 12.4% compared with the same quarter one year prior, going from $6.4 million to $7.2 million. Also, gross profit margin is rather high; currently it is at 66.7%. It has increased from the same quarter in the previous year.

Fourth quarter revenue descended 5.3% from the prior year's quarter. However, we believe that the strengths outlined above outweigh any weaknesses at the current time and it is an attractive time to buy.

NCI ( NCIT) is a provider of 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 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 31 cents to 33 cents, 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.

Diamond Foods ( DMND) processes and markets culinary, snack, in-shell and ingredient nuts. Its branded products are distributed in over 80.0% of U.S. supermarkets, and the company is the U.S. leader in walnut exports to Europe and the Pacific Rim.

We upgraded Diamond Foods from a hold to a buy in July 2008 on the basis of the company's impressive record of EPS growth, increases in revenue and net income, and largely solid financial position. Powered by its strong earnings growth of 117.6% and other important driving factors, this stock has surged by 38.8% over the past year, outperforming the rise in the S&P 500 during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.

The company reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Diamond increased its bottom line by earning 92 cents vs. 54 cents in the prior year. This year, the market expects an improvement in earnings to $1.35.

Although the company shows low profit margins, we feel that the strengths detailed above outweigh any 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 40.8%, 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-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. We upgraded EMS 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.

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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.