NEW YORK ( TheStreet) -- The small-cap Russell 2000 Index has returned 29% over the past year, almost twice that of the S&P 500 Index of the largest U.S. stocks. And if the U.S. economy grows as expected, small-company stocks may widen that gap.

Small- and micro-cap stocks allow investors "to gain exposure to companies that are more economically sensitive", says Sam Dedio, manager of the Artio U.S. Microcap Fund ( JMCAX).

TheStreet searched for superior small-cap stocks with Dedio and Chris Retzler, manager of the Needham Small Cap Growth Fund ( NESGX).

Advanced Energy Industries ( AEIS)

Advanced Energy is a market leader in power-conversion technologies. It has a market value of $706 million.

The company's main business is thin-film power-conversion systems that "customize" raw electricity from the utility grid to allow for use in the production of semiconductors, flat-panel displays, data storage and industrial equipment. The company recently diversified its business by entering the solar-inverter market, offering services for residential, commercial and utility solar, photovoltaic markets.

After a tough 2009, the company's major end markets improved in 2010 and the outlook for 2011 is also favorable, says Dedio.

"The company and its end markets are headed in the right direction," says Dedio. "And the stock is trading at 5.5 times 2011 EBITDA, which we think is seriously undervalued."

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