10 Small-Cap Stocks With Margin of Safety

BOSTON (TheStreet) -- Small-cap stocks are typically high-beta and high-risk. But here are 10 top-ranked small-cap companies that carry more cash than debt on their balance sheets. Excess liquidity ensures that these companies can survive in any economic environment. They rank in the top percentile for expected risk-adjusted return in TheStreet's 5,000+ stock coverage universe. Below, they are ordered by net cash, from plenty to too much.

10. U.S. Physical Therapy ( USPH) operates outpatient physical- and occupational-therapy clinics.Its third-quarter profit increased 25% to $3.9 million, or 33 cents a share, as revenue ascended 4.6%. The operating margin widened from 14% to 16%. U.S. Physical Therapy has $9.7 million of cash and $480,000 of debt, converting to a quick ratio of 2.3 and a miniscule debt-to-equity ratio. It trades at a cash flow multiple of 7.4, a 31% discount to the industry average. But, the stock is fairly valued relative to peers based on forward earnings and book value.

Expected Return: TheStreet's quantitative model expects the stock to rise 22% to $23.30.

9. Aaon ( AAON) manufactures and sells air-conditioning and heating equipment. Its third-quarter net income decreased 32% to $5.2 million, or 31 cents a share, though revenue advanced 11% to $65 million. The gross profit margin dropped from 30% to 19%. Aaon has $16 million of cash and equivalents and no debt. Its stock sells for a forward earnings multiple of 16 and a cash flow multiple of 10, 44% and 22% discounts to building products peer averages. However, its book value multiple of 3.8 and sales multiple of 1.9 represent premiums to peer averages.

Expected Return: The model values Aaon at $31.18, suggesting a 12-month return of 23%.

8. Atrion ( ATRI) makes ophthalmology, cardiovascular and fluid-delivery products for health-care markets. Third-quarter profit increased 21% to $5.4 million, or $2.66 a share, as revenue stretched 7.8% to $27 million. The operating margin rose from 26% to 29%. Atrion's balance sheet stores $17 million of cash, equal to a quick ratio of 2.2, and no debt. Its stock trades at a forward earnings multiple of 15, a book value multiple of 2.8, a sales multiple of 3.1 and a cash flow multiple of 11, 24%, 35%, 15% and 20% discounts to health care peer averages.

Expected Return: The model forecasts that Atrion's stock will appreciate 15% to $189.39.

7. Village Super Market ( VLGEA) operates a ShopRite chain in New Jersey and Philadelphia. Its fiscal fourth-quarter profit gained 33% to $8.9 million, or 65 cents a share, as revenue grew 10% to $343 million. The operating margin expanded from 4.1% to 4.6%. Village has $69 million of cash and $42 million of debt, translating to a quick ratio of 0.9 and a debt-to-equity ratio of 0.2. Its stock sells for a forward earnings multiple of 14, a book value multiple of 2.1, and a cash flow multiple of 12, on par with peers. It pays a 3% dividend yield with a 53% payout ratio.

Expected Return: The model expects Village Super Market's stock to rally 15% to $37.85.

6. Continucare ( CNU) provides outpatient primary-care physician services through 18 facilities. Its fiscal first-quarter net income increased 9.1% to $5.8 million, but earnings per share remained steady at 9 cents due to a larger float. Revenue inched up 3.9%. The operating margin widened from 11% to 12%. Continucare holds $34 million of cash, equal to a lofty quick ratio of 4.7, and no debt. Its stock trades at a trailing earnings multiple of 12, a forward earnings multiple of 9.6 and a book value multiple of 1.8, 23%, 32% and 36% discounts to peer averages.

Expected Return: The model values Continucare at $5.68, implying a one-year gain of 37%.

5. Metropolitan Health Networks ( MDF) operates provider-service networks, arranging health-care services for Medicare Advantage beneficiaries. Its third-quarter net income more than doubled to $6.8 million and earnings per share more than tripled to 16 cents, boosted by a smaller float. Revenue inched up 3.4%. The operating margin jumped from 3.9% to 12%. The company has $42 million of cash and $520,000 of debt. Its stock sells for a trailing earnings multiple of 7.4 and a forward earnings multiple of 7.9, 53% and 44% discount to peer averages.

Expected Return: The model predicts that Metropolitan's stock will advance 31% to $5.62.

4. GSI Technology ( GSIT) designs static random-access-memory products for networking and telecom markets. Its fiscal second-quarter profit doubled to $5.3 million, or 18 cents a share, as revenue soared 82% to $27 million. The operating margin widened from 12% to 25%. GSI holds $47 million of cash and equivalents, converting to a quick ratio of 2.8, and no debt. Its stock trades at a trailing earnings multiple of 13, a forward earnings multiple of 10, a book value multiple of 1.8 and a sales multiple of 2.2, 34%, 25%, 54% and 33% discounts to industry averages.

Expected Return: The model forecasts that GSI Technology's stock will gain 33% to $9.28.

3. Hawkins ( HWKN) makes and sells bulk and specialty chemicals. Its fiscal second-quarter profit inched up 2.5% to $6.8 million, or 66 cents a share, as revenue expanded 8.3% to $70 million. The operating margin contracted from 17% to 16%. Hawkins has $60 million of cash, equal to a quick ratio of 2.8, and no debt. Hawkins shares sell for a trailing earnings multiple of 16, a forward earnings multiple of 15, a book value multiple of 3, a sales multiple of 1.5 and a cash flow multiple of 14, 40%, 19%, 19%, 42% and 21% discounts to chemicals industry averages.

Expected Return: The model values Hawkins at $50.65, suggesting a 12-month return of 26%.

2. Opnet Technologies ( OPNT) sells systems software products and services to businesses. Its fiscal second-quarter net income surged 90% to $2.9 million and earnings per share advanced 86% to 13 cents. Revenue increased 18%. The operating margin widened from 7.2% to 13%. Opnet's balance sheet stores $108 million of cash and no debt. Its stock trades at a book value multiple of 3.6 and a sales multiple of 3.3, 27% and 82% discounts to industry averages. But, its trailing earnings of 50 and forward earnings multiple of 27 represent sizable premiums.

Expected Return: The model predicts that Opnet's stock will appreciate 31% to $27.54.

1. Ultratech ( UTEK) makes photolithography and laser thermal processing equipment, used in scanners and semiconductors. Third-quarter profit more than quadrupled to $4.9 million, or 20 cents a share, as revenue climbed 52% to $38 million. The operating margin extended from 2.9% to 13%. Ultratech has $185 million of cash, converting to a lofty quick ratio of 4.4, and no debt. Its stock sells for a book value multiple of 2.1, a 46% discount to the semiconductor industry average. But, its forward earnings multiple of 16 reflects a 19% industry premium.

Expected Return: The model forecasts that Ultratech's stock will climb 34% to $24.85.

-- Written by Jake Lynch in Boston.

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