Proven Small-Cap Winners: Under the Radar

BOSTON (TheStreet) -- The following small-cap stocks have risen more than their benchmarks since TheStreet.com highlighted them in articles during the past three months.

3. Leaf-tobacco merchant Universal Corp. ( UVV) suffered a 14% drop in fiscal third-quarter profit to $46 million, or $1.54 a share, as revenue contracted 5.4% to $661 million. Its operating margin narrowed from 11% to 10%. The stock has soared 17% since we recommended it in our Dec. 22 article Three Unloved Dividend-Paying Stocks.

Universal is still cheap at a price-to-earnings ratio of 10. Its PEG ratio, a measure of value relative to growth, of 0.4 represents a 52% discount to the tobacco-industry average. A PEG ratio below 1 implies cheap shares. Universal offers a dividend yield of 3.5% coupled with a safe payout ratio of 35%.

2. Chinese communications-equipment maker Telestone Technologies ( TSTC) has not yet disclosed its fourth-quarter results. The company has a market value of just $184 million, but a record of outstanding growth. During the past three years, Telestone has increased revenue 39% annually, on average, and boosted profit 34% a year. Its stock delivered 33% annualized gains over that period.

The shares are cheap relative to those of communications-equipment peers based on trailing earnings and book value. Telestone enjoys a net profit margin of 22%. Its stock has jumped 20% since our Feb. 9 article A Google 'Do-Over'.

1. Over-the-counter drug maker Perrigo ( PRGO) more than doubled fiscal second-quarter profit to $51 million, or 57 cents a share, as revenue expanded 8.6% to $583 million. The operating margin widened from 12% to 17%. During the past three years, Perrigo has propelled revenue 15% annually, on average, and expanded profit 40% a year.

Perrigo's stock appears expensive at a price-to-earnings ratio of 25, a 68% premium to the pharmaceutical-industry average. However, its PEG ratio of 0.3 reflects a 55% discount to peers. The stock has gained 24% since our Jan. 25 article Drugmaker's Generic Gains.

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