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.

Although the company reported its results for the fourth quarter of fiscal 2009 on June 4, our current rating is based on Hawkins' third-quarter financial results. We will update the rating if necessary once the most recent results are available to our model. For the third quarter, 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 earnings per share. 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% compared with 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 with 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 with 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.

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 EPS growth and largely solid financial position.

For the first quarter of fiscal 2009, NCI reported revenue growth of 14.8% year over year, which was higher than the industry average of 1.4%. This growth appears to have trickled down to the company's bottom line, as EPS improved 25.9% compared with the same quarter a year ago. We feel that NCI's two-year trend of positive EPS growth should continue. The company also reported increased net income, which rose 28.8% from $3.63 million to $4.68 million. An additional strength is the company's debt-to-equity ratio of 0.29, which is below the industry average and indicates successful management of debt levels. To add to this, NCI has a quick ratio of 1.55, demonstrating an ability to cover short-term liquidity needs.

Management was pleased with what it considered solid results for the first quarter. Looking ahead, the company announced expectations of diluted EPS in the range of 34 cents to 36 cents for the second quarter and $1.44 to $1.52 for full-year fiscal 2009. The stock has risen 35.77% over the past year, and we feel that the stock should continue to move higher on the strength of the positive factors detailed above, despite its low profit margins. Bear in mind, however, that almost any stock can fall in a broad market decline.

Atrion ( ATRI) designs, develops, manufactures, sells, and distributes products and components for the medical and healthcare industry. We have rated the company's stock a buy since April 2003 on account of Atrion's growth, efficiency, solvency and solid stock price performance.

For the first quarter of fiscal 2009, Atrion reported a slight revenue increase of 1.8% year over year. Although this result did not match the industry average of 5.9% growth, it does appear to have helped boost EPS, which improved 12.6% when compared with the same quarter last year. Net income also increased in the first quarter, rising 13.1% from $3.66 million to $4.13 million and significantly exceeding the industry and S&P 500 averages. Atrion has no debt to speak of, and we consider its resulting debt-to-equity ratio of zero to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.51, which clearly demonstrates its ability to cover short-term cash needs.

Altrion's management was pleased with the first quarter results and stated that the company expects to fulfill the modest growth in diluted EPS that it anticipates for the full year. A somewhat disappointing result for return on equity is a concern, but we feel that the strengths detailed above outweigh this potential weakness. In addition, we feel that the stock has good upside potential despite having already risen over the past year. It goes without saying, however, that even the best stocks can fall in an overall down market.

TheStreet.com Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!

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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