10 Small-Cap Stocks Poised to Rise, History Shows (Update2)

(Story updated to add that Fuel Systems Solutions' 2012 revenue outlook includes strong international growth in the second half of this year.)

BOSTON ( TheStreet) -- Small-cap stocks are in for a double-digit ride over the next six months, if previous bear-market recoveries hold true to form.

S&P Capital IQ's chief equity strategist, Sam Stovall, said in a research note Monday that benchmark small-cap indices, the Russell 2000 and S&P Small-Cap 600, have gained an average of 15%, 30% and 47% in the first three-, six- and 12-month periods following the eight recoveries after big corrections or mild bear markets since 1949.

"And this time around, the outperformance is again quite similar," he said. The S&P Small Cap 600 gained 25% in the first three months of this recovery and is up 35% since early October.

So if the Small Cap 600 "performs as it has in the past, it has another 12 percentage points to go in the coming six months," according to Stovall's research, which he presents with the caveat that past performance is no guarantee of future performance.

Given that backdrop, the index will have risen 47% in the 12 months to early October 2012 from its early October bottom last year.

In contrast, the large-cap benchmark, the S&P 500 , rose 17% in the first three months since the markets' October 2011 trough, and is up 25% from that now, which is also close to its historic norm in such recovery situations, Stovall reported. If it continues on its historical pace, it will gain 32% in the 12 months since the bottom.

Stovall cautions that that there is likely a correction or two in the interim, but adds that investors should forget about trying to time the market, since "more times than not, the 12-month advance was still higher than the corresponding six-month gain."

So, on the premise that investors should be able to ride several of these stocks through October to at least low double-digit increases, I screened Morningstar's database to find growth companies with financial fundamentals grades of "C" or better (as graded by Morningstar), with at least $330 million in market value, and that have returns of at least 40% over the past three months.

Here are the top 10 stocks, listed in inverse order of their share-price return over the past three months:

10. Zoll Medical ( ZOLL)

Company profile: Zoll, with a market value of $2 billion, makes medical equipment used to resuscitate victims of trauma or cardiac arrest.

Investor takeaway: Its shares are up 19% this year and 53% over the past three months, and have a three-year, average annual return of 88%.

Analysts give its shares four "buy" ratings, three "buy/holds," and one "hold," according to a survey of analysts by S&P.

Revenue has risen steadily over the past five years and, earnings, over three years. For fiscal 2012, analysts estimate Zoll Medical will earn $1.95 per share and that will grow by 36% to $2.65 in 2013.

9. Ista Pharmaceuticals ( ISTA)

Company profile: Ista Pharmaceuticals, with a market value of $355 million, develops various drugs for the ophthalmic market. It is also working on allergy drugs.

Investor takeaway: Ista's shares are up 21% this year, including 116% in the past three months, and have a three-year, average annual return of 69%.

Analysts give the stock one "buy/hold" rating and three "holds," per S&P. For fiscal 2012, analysts estimate earnings will grow 312% to 33 cents per share. For 2011, the company reported a net loss of $57 million or $1.47 per share, but it had operating income of $2.28 per share.

8. Buffalo Wild Wings ( BWLD)

Company profile: Buffalo Wild Wings, with a market value of $1.6 billion, is a casual dining restaurant chain that owns and franchises 560 restaurants in 38 states.

Investor takeaway: Buffalo Wild Wings' shares are up 32% this year, 42% over the past three months, and have a three-year, average annual return of 43%.

Analysts give them seven "buy" ratings, one "buy/holds," nine "holds," and one "sell," according to S&P. Analysts estimate it will earn $3.28 per share this year and that that will grow by 17% to $3.85 in 2013. Revenue, earnings and cash flow are up by double-digit amounts over the past five years.

7. Mako Surgical ( MAKO)

Company profile: Mako Surgical, with a market value of $1.6 billion, develops a robotic device and implants for a minimally invasive knee procedure called the MAKOplasty.

Investor takeaway: Its shares are up 41% over the past three months and have a three-year average annual return of 77%. Analysts give them one "buy" rating, two "buy/holds," and five "holds," according to S&P.

6. Bio-Reference Labs ( BRLI)

Company profile: Bio-Reference Labs, with a market value of $642 million, is a New Jersey-based company that performs chemical-diagnostic tests, including blood and urine analysis, hematology services, pap smears and other types of tests.

Investor takeaway: Its shares are up 42% this year, including 65% in the past three months, and have a three-year, average annual return of 29%. Analysts give the stock three "buy" ratings and two "holds," according to a survey of analysts by S&P.

Bio-Reference Labs expected to earn $1.45 per share this year, and that that will grow by 19% to $1.73 per share in 2013. The company has five years of steady revenue, earnings and cash flow growth.

5. eResearchTechnology ( ERT)

Company profile: eResearchTechnology, with a market value of $338 million, provides technology and services that enable the pharmaceutical, biotechnology, and medical device industries to collect, interpret, and distribute data.

Investor takeaway: Its shares are up 44% this year, 50% over the past three months, and have a three-year, average annual return of 12.5%.

Analysts give its shares four "buy" ratings, two "buy/holds," and one "hold," according to a survey of analysts by S&P. The company reported record revenue of $185 million for fiscal 2011 versus $141 million last year. Net income was 28 cents per share versus 20 cents last year.

4. TransGlobe Energy ( TGA)

Company profile: TransGlobe Energy, with a market value of $845 million, is a Canadian oil and gas exploration and production company, with interests in Canada, Yemen, and Egypt.

Investor takeaway: TransGlobe's shares are up 48% this year, 52% over the past three months, and have a three-year, average annual return of 64%.

Analysts give its shares one "buy" rating, one "buy/hold," and one "hold," according to S&P. Last week, the company reported 2011 that net earnings rose 101% to $81.4 million, or $1.09 per share, which includes an 18% share gain on an acquisition.

3. Cirrus Logic ( CRUS)

Company profile: Cirrus Logic with a market value of $1.5 billion, develops high-precision analog and mixed-signal integrated circuits for a range of consumer and industrial markets.

Investor takeaway: Its shares are up 50% this year, 42% over the past three months, and have a three-year, average annual return of 96%. Analysts give its shares four "buy" ratings and one "hold," according to a survey of analysts by S&P.

For fiscal 2012, analysts estimate it will earn $1.25 per share and that earnings will grow by 27% to 1.59 per share in 2013. Earnings are choppy, as is the semiconductor industry. In 2011, it earned $2.82 per share contributing to a trailing price-to-earnings ratio of a very low 9.8.

2. EZChip Semiconductor ( EZCH)

Company profile: EZChip Semiconductor, with a market value of $1 billion, develops and sells Ethernet network processors for networking equipment, including hardware and software.

Investor takeaway: Its shares are up 51% this year, 44% in the past three months, and have a three-year, average annual return of 61%. Analysts give its shares three "buy" ratings, three "buy/holds," and three "holds," according to a survey of analysts by S&P. In 2011, it earned $8 million, or 28 cents per share.

1. Fuel Systems Solutions ( FSYS)

Company profile: Fuel Systems, with a market value of $514 million, makes alternative fuel components and systems for use in the transportation, industrial, and power generation markets. Its systems allow internal combustion engines to operate on natural gas or propane.

Investor takeaway: Its shares are up 56% this year, including a 46% gain in the past three months, and have a three-year, average annual return of 30%.

Analysts give its shares two "buy" ratings, one "buy/holds," four "holds," and one "weak hold," according to a survey of analysts by S&P. Analysts estimate its earnings will grow 117% to 78 cents per share in fiscal 2012.

Fuel Systems said it expects strong second-half revenues on rising international demand. Last week it forecast 2012 revenue of between $420 million and $440 million, while analysts' consensus estimate is for $437.3 million. The company said it expects continued growth in European aftermarket products and strong demand in India, Thailand, China and Latin America in the second half of 2012.

>>To see these stocks in action, visit the 10 Small-Cap Stocks Poised to Rise, History Shows portfolio on Stockpickr.

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

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