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.

Hawkins ( HWKN) formulates, blends, and distributes bulk and specialty chemicals for water treatment and industrial and pharmaceutical use. We have rated the stock a buy since January 2003 on the basis of its efficiency, solvency, and solid stock price performance.

For the third quarter of fiscal 2009, the company reported very impressive revenue growth of 59.7% year over year. This growth greatly exceeded the industry average of 22.9% and appears to have contributed to improved EPS. Hawkins posted a significant change in EPS to 68 cents from 15 cents in the prior year's quarter. Net income also increased dramatically, rising 362.7% when compared to the same quarter a year ago. A further strength for the company is that it has no debt to speak of, resulting in a favorable debt-to-equity ratio of zero. To add to this, a quick ratio of 1.65 clearly demonstrates the company's ability to cover its short-term liquidity needs.

Management stated that Hawkins' business and gross profit will return to levels in line with past results over the next few months, as commodity pricing and demand have begun to level off recently. The company shows weak operating cash flow, but we feel that the strengths detailed above outweigh any potential weakness at this time.

Tompkins Financial Corporation ( TMP) is the corporate parent of three community banks: Tompkins Trust Company, The Bank of Castile, and Mahopac National Bank. Its three banks primarily offer commercial banking services to individuals and businesses throughout New York state. We have rated Tompkins Financial a buy since October 2007 on the basis of its expanding profit margins, solid stock price performance, and growth in revenue, net income, and EPS.

For the first quarter of fiscal 2009, Tompkins' revenue increased slightly by 3% year over year. This growth appears to have trickled down to the company's bottom line, as EPS improved from 77 cents to 79 cents over the past year. Net income also increased slightly, rising 2.7% when compared to the same quarter of last year. Tompkins' gross profit margin increased from the prior year's quarter and is currently very high at 73.6%.

Management was pleased with Tompkins' strong operating results for the first quarter and feels that the company is well positioned to perform well in the future despite its predictions of continued challenges in the remainder of the fiscal year. Although the company shows weak operating cash flow and its stock has been driven to a premium valuation compared to the rest of its industry, we feel that its strengths outweigh any potential weaknesses and justify the higher price level at this time.

Diamond Foods ( DMND) processes and markets culinary, snack, in-shell, and ingredient nuts, which are primarily sold through two main product lines: Diamond of California and Emerald Nuts. We upgraded the company's stock from a hold to a buy in April 2009 on the basis of Diamond's good cash flow from operations, notable return on equity, and growth in revenue, net income, and EPS.

For the third quarter of fiscal 2009, Diamond reported revenue growth of 11% year over year. Although this trailed the industry average, EPS improvement from 7 cents to 16 cents per share indicates that the company's revenue growth trickled down to its bottom line. EPS growth has in fact been trending positive for the past two years, and we feel this should continue. Diamond's net income increased significantly in the third quarter when compared to the prior year's quarter, rising 144.1% from $1.11 million to $2.7 million. Net operating cash flow also increased significantly, rising 126.48% to $8.75 million. In addition, the company's return on equity improved slightly and can therefore be considered a modest strength for Diamond.

Looking ahead to full-year results for fiscal 2009, Diamond anticipates non-GAAP EPS in the range of $1.31 to $1.36, along with net sales of $550 million to $565 million. Guidance was raised from previously announced expectations on the basis of third quarter results. We find the company's debt management to be generally poor, but feel that the strengths detailed above should outweigh this potential weakness.

American Physicians Service Group ( 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. This rating is supported by several positive factors, including its largely solid financial position and expanding profit margins.

For the first quarter of fiscal 2009, APS reported a slight drop in revenue, but this does not appear to have hurt the company's bottom line, as EPS improved 45.6%. The company has reported somewhat volatile earnings recently, but we feel that it is poised for EPS growth in the coming year. The company's net income also increased significantly in the first quarter, rising 39.9% when compared to the prior year's quarter. Its gross profit margin increased since the first quarter of last year, and we consider it to be strong at 43.9%.

Management was pleased to see its momentum from fiscal 2008 continue into fiscal 2009, and expects to see continued progress as the year continues. Although the company may harbor some minor weaknesses, we do not feel that they are likely to have a significant impact on future results.

PetMed Express ( PETS), which does business as 1-800-PetMeds, markets and sells prescription and non-prescription pet medications, along with other health products for dogs, cats, and horses. We have rated PetMed Express a buy since November 2004 due to such strengths as its solid stock price performance, largely solid financial position, and growth in net income, EPS and revenue.

For the fourth quarter of fiscal 2009, PetMed recorded revenue growth of 18.9% year over year. This trails the industry average, but appears to have helped boost EPS, which improved 25% in the fourth quarter. We feel that the company's trend of positive EPS growth over the past two years should continue. Net income also increased in the fourth quarter, rising 15.2% from $4.9 million to $5.65 million. PetMed has no debt to speak of, and we consider its zero debt-to-equity ratio to be a favorable sign. In addition, a quick ratio of 4.72 clearly demonstrates the company's ability to cover its short-term cash needs.

Management was proud of PetMed's financial performance throughout fiscal 2009, citing the fourth quarter in particular. Reorder and new order growth were cited as factors in the company's successful fiscal year. The company's weak operating cash flow could be a cause for concern, but we feel this is outweighed by the strengths detailed above. In addition, we feel that PetMed's stock has good upside potential in most market conditions, despite the fact that it has already risen in the past year as a result of earnings growth and other factors like those cited here.

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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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