BOSTON ( TheStreet) -- The small-cap Russell 2000 Index outperformed the Dow Jones Industrial Average and S&P 500 Index in 2009. However, investors rotated into large-caps in the fall, and many smaller companies are now selling at a discount. Here are five cheap stocks with strong fundamentals.

5. Transcend Services ( TRCR) provides-medical transcription services.

The numbers: Third-quarter profit increased to $1.84 million, or 67 cents a share, as revenue increased 52% to $18.5 million. The company's operating margin fell from 18.9% to 16.1%. Transcend Services has a good liquidity position, evident in its quick ratio of 1.56. Its 0.58 debt-to-equity ratio indicates manageable leverage.

The stock: Transcend Services increased 111% over the past year, outpacing all major U.S. indices. The stock trades at a price-to-earnings ratio of 20.8, a premium to medical peers. Transcend doesn't pay dividends.

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