Top 5 Stocks: Hawkins, American Physicians

TSC Ratings provides exclusive stock, ETF and mutual fund recommendations using proprietary tools. Our "safety first" approach aims to reduce risk while achieving performance on a total return basis.

The following small-cap companies have market values between $50 million and $500 million and receive "buy" ratings from our 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 ascended 32% to $68 million as net income surged 194% to $5.1 million and earnings per share climbed 182% to 48 cents. Operating margin increased to 11% and net margin jumped 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, outperforming all major U.S. indexes. Yet the stock trades at a price-to-earnings ratio under 10, indicating a discount to the market. Hawkins pays a weak 0.3% dividend.

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

The numbers: First-quarter revenue fell 2% to $19 million as net income increased 40% to $4.7 million and earnings per share jumped 46% to 67 cents. Operating margin surged to 38% and net margin climbed to 25%. The company boasts a minuscule debt load and has ample liquidity, as reflected by $38 million of cash.

The stock: American Physicians Group is up 4% in 2009, outperforming the Dow and the S&P 500. The stock is affordable at a price-to-earnings ratio under 8, but offers a small 1.3% dividend yield.

Applied Signal Technology ( APSG) provides intelligence, surveillance and reconnaissance services to 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 to 12% and net margin ascended 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 4.6 and a debt-to-equity ratio just above zero.

The stock: Applied Signal Technology is up 34% in 2009, outperforming all major U.S. indexes. The stock trades at an expensive price-to-earnings ratio of 26 and offers a 2.1% dividend yield.

NCI ( NCIT) provides IT engineering and professional solutions 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 rose 29% to $4.7 million and earnings per share climbed 26% to 34 cents. Operating margin improved to 7.6% and net margin stretched to 4.5%. The company has a high quick ratio of 1.6, but just $1.4 million of cash, compared to $31 million of debt.

The stock: NCI is up 4% in 2009, outperforming the Dow and S&P 500. The stock trades at a high price-to-earnings ratio of 24 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 ascended to 20% and net margin climbed 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 soared 33% in 2009, outperforming all major U.S. indexes. The stock trades at a high price-to-earnings ratio around 20 and doesn't pay dividends.

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A rating can be viewed for any stock through our 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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