10 Safest Small-Cap Stocks

BOSTON (TheStreet) -- U.S. stocks tumbled yesterday on signs of weak U.S. consumer confidence and an economic slowdown in China.

The Russell 2000, a small-cap benchmark, fell 2.5%, less than the S&P 500's 3.1% decline. Although small-caps represent a risky segment of the stock market, there are relatively safe investments. Here are the 10 safest small-caps, according to TheStreet's stock model. Each receives a "buy" rating and a top grade for financial strength, a gauge of balance sheet and business durability. The stocks are ordered by financial-strength score, from worst to best.

10. EZchip Semiconductor ( EZCH) designs chips for high-speed networking equipment.

Quarter: First-quarter profit more than doubled to $2.9 million, or 11 cents, as revenue gained 38%. The operating margin widened from 11% to 28%. EZchip has $75 million of cash, equaling a quick ratio of 12, and no debt or interest expenses.

Stock: EZchip Semiconductor has advanced 9.4% during the past year, trailing U.S. stock indices. It trades at a price-to-projected-earnings ratio of 15, a premium to the semiconductor industry average. It's cheap based on book value and cash flow.

Consensus: Of analysts covering EZchip, one advises purchasing its shares and one recommends holding them. Capstone Investments offers a target of $28, leaving a potential return of 56%. Jefferies ( JEF) values the stock at $14.

9. Prospect Capital ( PSEC) is a closed-end private-equity investment company.

Quarter: Fiscal third-quarter net income increased 62% to $19 million, but earnings per share fell 23% to 30 cents, hurt by a larger float. Revenue gained 55%. Prospect has $21 million of cash and $54 million of debt, converting to a debt-to-equity ratio of 0.1.

Stock: Prospect Capital has fallen 1.7% during the past 12 months, trailing U.S. stock benchmarks. It sells for a price-to-projected-earnings ratio of 8.1 and a price-to-cash-flow ratio of 7.6, reflecting 34% and 55% discounts to its peer averages.

Consensus: Of researchers following Prospect Capital, all eight rate it "hold." None rank it "buy" or "sell." Macquarie ( MQBKY) offers a target of $13.50, leaving 38% of potential upside. Sterne, Agee & Leach offers a target of $12.

8. IDEXX Labs ( IDXX) distributes veterinary, water-testing and dairy products.

Quarter: First-quarter profit increased 27% to $33 million, or 55 cents, as revenue expanded 14%. The operating margin rose from 16% to 18%. IDEXX has $106 million of cash and $162 million of debt, translating to a debt-to-equity ratio of 0.3.

Stock: IDEXX has advanced 34% during the past year, outperforming U.S. indices. It trades at a price-to-projected-earnings ratio of 25 and a price-to-book ratio of 7.3, 19% and 80% premiums to industry averages. It's cheap based on cash flow.

Consensus: Of firms evaluating IDEXX Labs, three, or 33%, advocate purchasing its shares, five recommend holding and one suggest selling them. CL King & Associates expects the stock to gain 25% to $77. Kaufman Brothers offers a target of $75.

7. Bemis Co. ( BMS) manufactures packaging products.

Quarter: First-quarter profit decreased 16% to $31 million, or 27 cents, as revenue grew 21% to $1 billion. The operating margin declined from 8.2% to 7.2%. Bemis has $64 million of cash and $1.5 billion of debt, equaling a debt-to-equity ratio of 0.9.

Stock: Bemis has increased 8.8% during the past year, beating U.S. benchmarks. It sells for a price-to-projected-earnings ratio of 12, a slight discount to its industry average. The stock's book value multiple of 1.7 reflects a discount of 86%.

Consensus: Of analysts covering Bemis, four, or 33%, advise purchasing its shares, seven counsel holding and two say to sell them. Citigroup ( C) and Credit Suisse ( CS) offer a price target of $36, leaving a potential return of 30%.

6. Alberto-Culver ( ACV) sells beauty and food products.

Quarter: Fiscal second-quarter profit rose 7.3% to $30 million, or 30 cents, as revenue jumped 12% to $385 million. The operating margin remained steady at 12%. Alberto-Culver has $91 million of cash, equal to a quick ratio of 1.2, and $490,000 of debt.

Stock: Alberto-Culver has risen 4.4% during the past 12 months, lagging behind indices. It trades at a price-to-book ratio of 2.2, 65% less than the industry average. Its PEG ratio, a measure of value relative to growth, of 0.7 signals a 30% discount to fair value.

Consensus: Of researchers following Alberto-Culver, seven, or 41%, rate its stock "buy" and 10 rank it "hold." None rate it "sell." Caris & Co., Soleil Securities and Goldman Sachs ( GS) value the stock at $33, implying that 23% of upside remains.

5. Panera Bread Co. ( PNRA) owns and franchises bakery-cafes.

Quarter: First-quarter profit soared 48% to $26 million, or 82 cents, as revenue extended 14%. The operating margin rose from 9.1% to 12%. Panera has $305 million of cash, converting to a quick ratio of 2.2, and no debt or interest expenses.

Stock: Panera has surged 51% during the past year, beating U.S. indices by a wide margin. It sells for a price-to-book ratio of 3.9 and a price-to-sales ratio of 1.8, 29% and 30% discounts to peer averages. It's also cheap based on projected earnings.

Consensus: Of firms evaluating Panera, 13, or 65%, advocate purchasing its shares and seven suggest holding them. D.A. Davidson expects Panera to appreciate 39% to $105. Stifel Financial ( SF) predicts that the stock will rise to $100.

4. Tractor Supply Co. ( TSCO) operates retail farm and ranch stores.

Quarter: First-quarter profit multiplied from $470,000, or 1 cent, to $9.3 million, or 25 cents, as revenue ascended 9.3%. The operating margin extended from 0.2% to 2%. Tractor Supply has $138 million of cash and just $1.7 million of debt.

Stock: Tractor Supply has returned 51% during the past 12 months, outperforming benchmarks. It trades at a price-to-projected-earnings ratio of 15, on par with its peer average. The shares are undervalued based on sales and cash flow.

Consensus: Of analysts covering Tractor Supply, nine, or 43%, advocate purchasing its shares, 11 recommend holding and one suggests selling them. Feltl & Co. forecasts that the stock will rise 35% to $84. SunTrust ( STI) offers a target of $80.

3. Techne ( TECH) designs and sells life-sciences tools.

Quarter: Fiscal third-quarter profit increased 17% to $32 million, or 87 cents, as revenue grew 3.6% to $70 million. The operating margin declined from 60% to 59%. Techne carries $153 million of cash, but no long-term debt or interest expenses.

Stock: Techne has dropped 8.1% during the past year, trailing U.S. indices. It sells for a price-to-book ratio of 4.4 and a price-to-cash-flow ratio of 20, demonstrating 39% and 34% premiums to peer averages. It's cheap based on projected earnings.

Consensus: Of researchers following Techne, three, or 50%, rate its stock "buy" and three rank it "hold." None rank it "sell." Robert W. Baird forecasts that the stock will gain 20% to $71. Craig-Hallum predicts that the shares will advance 18% to $70.

2. Lancaster Colony Corp. ( LANC) sells food products, glassware and candles.

Quarter: Fiscal third-quarter profit increased 14% to $24 million, or 86 cents, as revenue inched up 1.7% to $250 million. The operating margin extended from 13% to 15%. Lancaster Colony holds $96 million of cash and no long-term debt.

Stock: Lancaster Colony has appreciated 22% during the past 12 months, outpacing U.S. stock benchmarks. It sells for a price-to-projected-earnings ratio of 12, 18% less than its peer average. Its PEG ratio of 0.4 signals a 60% discount to fair value.

Consensus: Of firms evaluating Lancaster Colony, two, or 50%, advocate purchasing its shares and two say to hold them. Soleil Securities expects the stock to rise 25% to $68. Janney Montgomery Scott predicts that the shares will hit $59.

1. Tootsie Roll Industries ( TR) sells candy in North America.

Quarter: First-quarter profit stretched 9.2% to $9.1 million, or 16 cents, as revenue increased 9.8%. The operating margin tightened from 13% to 10%. Tootsie Roll has $85 million of cash, converting to a quick ratio of 2.1, and $7.5 million of debt.

Stock: Tootsie Roll has advanced 10% during the past year, lagging behind indices. It trades at a price-to-projected-earnings ratio of 25 and a price-to-cash-flow ratio of 19, 66% and 75% premiums to peer averages. It's cheap based on book value.

Consensus: Just two analysts cover Tootsie Roll Industries, with one ranking it "hold" and one rating it "sell." Soleil Securities values the stock at $21, implying that it is overpriced by $3. Still, Tootsie Roll garners a financial-strength score of 9.4 out of 10.

-- Reported by Jake Lynch in Boston.

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