Top 5 Small-Cap Stocks: Hawkins, NCI

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The following small-cap companies have market values of $50 million to $500 million, and receive "buy" ratings from TheStreet.com Ratings' proprietary quantitative model, which considers more than 60 factors. They are ordered by their potential to appreciate.

Hawkins ( HWKN) blends and distributes bulk and specialty chemicals for water treatment, and industrial and pharmaceutical use.

The numbers: Fiscal fourth-quarter revenue rose 32% to $68 million as net income surged 194% to $5.09 million and earnings per share climbed 182% to 48 cents. Operating margin increased 694 basis points to 11% and net margin jumped 413 basis points to 7.5%. The company has zero debt and ample liquidity, as reflected by a quick ratio of 2.1.

The stock: Hawkins has risen 43% in 2009, far outperforming the Dow Jones Industrial Average and the S&P 500. Yet, the stock trades at a price-to-earnings ratio under 10, less than half the peer average of 20. The stock offers a weak 0.26% dividend yield.

Applied Signal Technology ( APSG) provides intelligence, surveillance and reconnaissance wares for the defense and homeland security markets.

The numbers: Fiscal second-quarter revenue increased 18% to $54 million as net income and earnings per share doubled to $4 million and 31 cents, respectively. Operating margin climbed 581 basis points to 12% and net margin ascended 314 basis points to 7.6%. The company has an ideal financial position, with just $4 million of debt and $55 million of cash, amounting to a high quick ratio of 4.62 and a low debt-to-equity ratio of 0.03.

The stock: Applied Signal Technology is up 25% in 2009, outperforming all major U.S. indexes. The stock trades at an expensive price-to-earnings ratio of 24 and pays a 2.2% dividend yield.

American Physicians Group ( AMPH) provides medical professional liability insurance for physicians and health-care providers in Texas. The company also has an investment arm that sells advice and asset management services to institutions and wealthy individuals.

The numbers: Fiscal first-quarter revenue fell 2% to $19 million as net income ascended 40% to $4.7 million and earnings per share increased 46% to 67 cents. Operating margin surged 1,054 basis points to 38% and net margin climbed 738 basis points to an impressive 25%. The company boasts a debt-to-equity ratio of 0.04 and has ample liquidity, as reflected by $38 million of cash.

The stock: American Physicians Group is up 5% in 2009, outperforming the Dow and the S&P 500. Still, the stock is affordable at a price-to-earnings ratio under 8, but offers a weak 1.3% dividend yield.

NCI ( NCIT) provides IT engineering and professional services to federal agencies. With mounting budget deficits and a growing national deficit, Washington is looking to cut costs and streamline. NCI offers an attractive play on this trend.

The numbers: Fiscal first-quarter revenue increased 15% to $105 million as net income ascended 29% to $4.7 million and earnings per share climbed 26% to 34 cents. Operating margin improved 38 basis points to 7.6% and net margin climbed 49 basis points to 4.5%. The company has a high quick ratio of 1.6, but just $1.4 million of cash, compared with $31 million of debt.

The stock: NCI is down 6% in 2009, in line with the Dow Jones Industrial Average. The stock trades at a high price-to-earnings ratio of 21 and doesn't pay dividends.

Pervasive Software ( PVSW) provides embeddable data management and integration software products worldwide.

The numbers: Fiscal third-quarter revenue increased 21% to $13 million as net income and earnings per share doubled to $1.9 million and 10 cents, respectively. Operating margin widened 972 basis points to 20% and net margin climbed 570 basis points to 14%. The company has zero debt and $44 million of cash, amounting to a high quick ratio of 4.3.

The stock: Pervasive Software has jumped 28% in 2009, outperforming all major U.S. indexes. The stock trades at a high price-to-earnings ratio of about 20 and doesn't pay dividends.

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A rating can be viewed for any stock through our screener stock rating screener. Each rating is derived from a variety of fundamental and pricing figures and represents our opinion of risk-adjusted performance relative to a 5,000+ stock coverage universe. However, the rating does not incorporate all factors that can alter a stock's performance, such as corporate or industry events, technology innovations and shifts in competitive dynamics.

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