BOSTON (TheStreet) -- When evaluating small-cap stocks, individual investors would do well to emulate private-equity professionals.

Focusing on balance sheets and private-market valuations of small companies cuts through the noise sounded by volatile stock markets like today's. After all, price isn't always indicative of value. The difference between the two can mean big profits for discerning investors, says Mark Travis, chief executive officer of Intrepid Capital Funds.

Travis uses such a strategy to determine the price that a rational buyer, paying cash, would offer for a company. Many companies he follows are growing fast and generating a lot of cash, but retail investors know very little about them because they fly under Wall Street's radar.

"We tend to be shopping where most retail investors -- and even some institutional ones -- aren't looking," Travis says. "Most of the market focuses on S&P 500 companies. We tend to be a small-cap buyer historically, so we don't spend a lot of time trying to guess Cisco's ( CSCO) next quarter or Exxon's ( XOM) margins."

Travis says companies that generate cash consistently attract suitors, either larger companies in their industry or private-equity firms. If neither comes forward, Travis is happy knowing the investment will continue to grow as the company's cash builds up.

Stable businesses with little debt tend to be winners, Travis says.

"That makes them durable when you go through some of the bumps we've been through in the last three to five years," he says. "We're not trying to front-run Steve Schwarzman at Blackstone ( BX). We just happen to like the characteristics of cash generators."

Patience is key, though, as there are risks to this trading style, Travis says.

"You're probably going to buy when no one else thinks it's a good idea," he says. "It tends to be not as correlated to the market. When everyone else is partying, you may not be. If the market races ahead, these types of businesses and share prices tend to lag."

For those investors looking to capitalize on the gap between price and value, Travis delivers a list of five stocks that he owns through Intrepid Capital Funds.

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Tekelec ( TKLC)

Company Profile: Tekelec is a provider of communications-network software and systems.

Closing Price: $11.82 (Sept. 17)

One-Year Stock Performance: -27%

Travis' Take: "This is an off-the-radar pick. It's an example of a company that has a really beautiful balance sheet and a share price trading at a low multiple. This trades at 12 times earnings. There's no debt and there's $226 million in cash. Almost a quarter of the market cap is in cash. You're able to buy it at a little over five times pretax cash flow. We think those shares are worth in the high teens."

Analyst Consensus: Six research firms cover Tekelec, although only one analyst rates the company a "buy." The other five research shops have a "hold" rating on the shares.

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Aaron's ( AAN - Get Report)

Company Profile: Aaron's sells and leases residential and office furniture, consumer electronics, and home appliances and accessories.

Closing Price: $16.70 (Sept. 17)

One-Year Stock Performance: - 7%

Travis' Take: "People don't realize with the financial-regulation bill that credit won't be more available; it'll be less available. This company has 1,700 stores with about 1,000 of those franchised and about 700 corporately owned. At $16, it has a 12 multiple and a beautiful balance sheet. It has $54 million in debt but $85 million in cash, so they have net cash on their books. It's a good business and could trade in the mid-20s."

Analyst Consensus: Nine analysts have a rating on Aaron's, with a majority (five) saying that investors should buy the stock. The other four researchers have a "hold" rating on shares.

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Rent-A-Center ( RCII - Get Report)

Company Profile: Rent-A-Center is a rent-to-own company, selling furniture, household goods and other wares.

Closing Price: $21.88 (Sept. 17)

One-Year Stock Performance: 17%

Travis' Take: "There's a big part of the population that doesn't even have a checkbook. They're perceived as loan-shark furniture rental, but that's really not the case. They have very lenient terms. It's not a sexy business. it's a necessary business. And it's probably not growing more than the rate of inflation. But the $200 million in free cash flow will be used to reduce debt, buy back shares, or jack up their dividend. The business has implemented a dividend after they've paid down a ton of their debt in the last year and a half. It doesn't have quite as pretty a balance sheet, with debt of $622 million. In two and a half years, though, they've cut their debt in half. We have Rent-A-Center valued in the high-20s."

Analyst Consensus: Eight of the nine analysts who cover Rent-A-Center rate the stock a "buy," while another says investors should hold the shares.

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Prestige Brands Holdings ( PBH - Get Report)

Company Profile: Prestige Brands sells health-care, cleaning and personal-care products.

Closing Price: $7.82 (Sept. 17)

One-Year Stock Performance: 4%

Travis' Take: "The company makes things that people need and use, such as Clear Eyes, Comet, and Spic and Span. It's a virtual company in that they buy orphaned brands that perhaps aren't growing rapidly. It generates about $60 million in free cash flow. The price-to-earnings ratio is less than the market multiple. Looking at the balance sheet, they have $295 million in debt, but that's come down from almost $500 million two and a half years ago. I think the stock is probably worth $10. The equity has opportunity."

Analyst Consensus: Three analysts rate Prestige Brands "buy." Another two say investors should hold the shares, while one analyst has a "sell" rating.

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Tidewater ( TDW - Get Report)

Company Profile: Tidewater provides offshore service vessels and marine-support services to energy companies.

Closing Price: $41.79 (Sept. 17)

One-Year Stock Performance: -10%

Travis' Take: "They service offshore oil rigs, which certainly have gotten a lot of negative press. But they have a clean balance sheet, with $300 million in debt and cash of $122 million. Less than 10% of revenue comes from servicing rigs in the Gulf of Mexico. It trades at less than 10 times earnings and you get a dividend of 2.4%. We think the shares are probably worth $53 or $54."

Analyst Consensus: Ten research firms who cover Tidewater are split evenly between rating the stock "buy" and "hold." No analyst has a "sell" rating on Tidewater.

-- Written by Robert Holmes in Boston.

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