Small-Cap Winners, Week of Oct. 18-22

NEW YORK ( TheStreet) -- The Russell 2000 index edged up on Friday, allowing the small-cap benchmark to continue to pad its lead over the Dow Jones Industrial Average so far in 2010.

October has been a stellar month for both indices but the Russell has outpaced the Dow, posting a gain of 4.1% to date vs. the blue-chip index's advance of 3.2%.

On Friday, the Russell 2000 added 5.31 points, or 0.76%, to finish at 703.43. The Dow couldn't keep pace as it fell for the first time in three sessions, losing 14 points, or 0.1%, to close at 11,133.

Those performances bring year-to-date returns to 13.6% for the Russell vs. the Dow's gain of 6.8% in 2010.

The Russell 2000 is a market capitalization-weighted index constructed by Russell Investments, which says its Russell 3000 index represents 99% of U.S. equities. The Russell 1000 index includes the 1000 biggest companies, by market cap, and the Russell 2000 holds the next 2000 companies.

Click here for a complete list of the Russell 2000's components. The index's top 5 weighted components as of Sept. 30 were Tibco Software ( TIBX), Riverbed Technology ( RVBD), Verifone Systems ( PAY), Rackspace Hosting ( RAX), and Nordson Corp. ( NDSN).

The Russell indexes exclude any companies that trade over-the-counter or on the Pink Sheets, as well as companies whose shares trade for less than $1 each. For further information on the methodology and maintenance of the indexes, click here.

Here's a list of the top five performers in the Russell 2000 in the past week with trailing three-month daily average volume of at least 50,000.

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AGA Medical ( AGAM) was the biggest percentage gainer in the last five sessions, rising 42.7% to $20.99. A deal to be acquired by St. Joe Medical ( JOE) for $1.8 billion will do that.

Announced on Oct. 18, the deal then valued AGA Medical shares at $20.80 each in a combination of cash and stock. St. Joe commenced the tender offer for AGA Medical's shares on Wednesday.

AGA Medical shares were down slightly for the year before St. Joe's offer came in, trading at just $14.71 ahead of the announcement. The Plymouth, Minn.-based maker of heart defect products is slated to report its third-quarter results on Nov. 8 with Wall Street forecasting earnings of 11 cents a share on revenue of $54.6 million.

St. Joe is aiming to complete the acquisition of AGA Medical by the end of the year, and it's expecting revenue growth in the low single digits from the franchise in 2011.

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Clarient ( CLRT) was the next biggest gainer within the Russell 2000, rising 38.7% in the Oct. 18-Oct. 22 timeframe to close the week at $4.97.

Again, a healthy premium in an acquisition was the driver as General Electric ( GE) anted up for the Aliso Viejo, Calif.-based provider of cancer testing services on Friday, agreeing to buy Clarient for $580 million, or roughly $5 per share, in cash.

Prior to the offer arriving from GE, Clarient shares had been up a little less than 10% year-to-date. The company's third-quarter results are still on tap for Nov. 1 with the average estimate of analysts polled by Thomson Reuters calling for earnings of a penny a share on revenue of $29.3 million.

Clarient will be part of GE Healthcare when the deal is completed in either late 2010 or early 2011, said GE, whose shares are up a little more than 6% year-to-date. In its press release disclosing the Clarient deal, GE said it expects it can build a $1 billion-plus business for diagnostic services, including oncology and other areas.

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Travelzoo ( TZOO) was the third-best performer in the Russell 2000 last week, gaining 26.3% to close at $34.65. Year-to-date, shares of the New York online marketer of travel and entertainment deals are up an incredible 118%.

In this case, a strong earnings report on Thursday was the impetus for the big gains. Travelzoo posted a profit from continuing operations of $3.7 million, or 22 cents a share, for the three months ended Sept. 30, up from year-ago equivalent earnings of $1.3 million, or 8 cents a share, and well ahead of Wall Street's consensus estimate for a profit of 11 cents a share.

Wedbush Morgan lifted its 12-month price target on Travelzoo to $40 from $32 following the report, saying the results were "much better than expected as Europe finally reached profitability."

The firm also cited rising valuations for online travel companies as a potential catalyst from Travelzoo, noting appreciation in the shares of competitors like Expedia ( EXPE), Orbitz Worldwide ( OWW), and Priceline.com ( PCLN) as well as Google's ( GOOG) acquisition of ITA Software for $700 million.

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LSI Industries ( LYTS) was the fourth best performer in the Russell 2000 last week, jumping 23.7% to finish at $8.28. Despite the run-up, shares of the Cincinnati-based maker of lighting and electronic signage products are still down almost 15% year-to-date.

A resounding beat Thursday on expectations for the company's fiscal first-quarter results was what sparked the buying for LSI Industries as the company reported an adjusted profit of $4.3 million, or 18 cents a share, for the September period, more than double year-ago equivalent earnings of $1.6 million, or 7 cents a share, and far beyond the average estimate of three analysts polled by Thomson Reuters for earnings of 4 cents a share.

LSI's sales surged 18% year-over-year to $79.9 million, which was far ahead of Wall Street's expectations of $66 million.

"While we are proud of the increase in sales, we also believe these operating results demonstrate that LSI is being operated on a very efficient basis and will enjoy favorable operating leverage to its earnings as net sales increase," said Robert Ready, the company's president and CEO, in its Oct. 21 press release.

LSI shares hit a 52-week high of $9.29 on Thursday, so they saw some profit-taking before the week drew to a close. It's been a real rocket ride for the stock since scraping a 52-week low of $4.69 in late August.

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Applied Signal Technology ( APSG) is rounding out the top 5 with a rise of 20.4% to close the week at $31.33 but the stock may be just getting started as it was trading even higher in extended action, last quoted at $33.25, up another 6%. Year-to-date, the stock is now up 39.5%.

Interestingly, Applied Signal's biggest news of the week wasn't released until after Friday's closing bell had sounded. The stock gained 12% during the regular session when reports surfaced that it might be in play, and the Sunnyvale, Calif.-based communications equipment maker then announced plans to explore its strategic options, including a possible sale or merger, driving even more buying.

The company has hired Bank of America-Merrill Lynch as its strategic advisor in the process. Applied Signal is currently in its fiscal fourth quarter, which ends this month, and Wall Street is expected a profit of 22 cents a share on revenue of $61 million for the three-month period.

At current levels, the stock is trading at a forward 2011 price-to-earnings ratio of 27.5X.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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