10 Small-Cap Stocks Safe for Skittish Investors (Udate1)

(Story updated to add that Copart recently announced a 2-for-1 stock split.)

BOSTON ( TheStreet) -- The small-cap stock sector may be one of the most fertile fields to plow this spring as the economy heats up.

Although the S&P SmallCap 600 Growth Index is running right on par with the S&P 500's 12% gain this year, it's up 35% since early October when the markets' recovery began. According to S&P Capital IQ chief equity strategist Sam Stovall, small-cap stocks historically have, on average, risen 47% in the 12 months following a market bottom. That means it may not be too late to go small-cap-stock shopping.

The downside to investing in the small-cap sector is that it can be a rocky patch during periods of economic uncertainty, and its stocks can be highly volatile.

In light of that, S&P Capital IQ analyst Jim Corridore screened a large number of small-cap growth mutual funds to find those with the lowest beta, a measure of a stock's or a fund's performance in relation to the overall market, and is indicative of their volatility.

He found three funds that have very low volatility, coming close to a beta of 1, which means their portfolio moves in step with the broader market. They also get high ratings from S&P Capital IQ for performance and management competence.

They are the $540 million Loomis Sayles Small Cap Growth Retail Fund ( LCGRX), up 11% this year; the $262 million Nicholas Limited Edition I Fund ( NCLEX), up 12%; and the $533 million Wasatch Core Growth Fund ( WGROX), up 11%.

I then reviewed the three funds' portfolios to identify some of their best-performing stocks, and they should be quality picks as well, since they, in effect, have gone through two independent screens, that of their fund managers and then, indirectly, Standard & Poor's.

As can be expected in the small-cap sector, these funds have some quirky holdings. For example, the Loomis Sayles fund's top pick is a software firm that sells a program that does all the back-office work for car dealers. The top three holdings of the Nicholas fund include two women's products retailers. The Wasatch fund's top selection is an auctioneer of totaled cars and recovered stolen vehicles.

Here are 10 of the top stock picks of three low-volatility, highly rated small-cap growth funds, ranked in inverse order of their number of "buy" ratings:

10. Copart ( CPRT)

Company profile: Copart, with a market value of $3 billion, provides auction services to sell salvaged vehicles, which are either damaged vehicles deemed a total loss for insurance purposes or recovered stolen vehicles for which an insurance settlement has already been paid.

Investor takeaway: Its shares are up 10% this year and have a three-year, average annual return of 21%. Analysts give its shares one "buy/hold," five "holds," and three "weak holds," according to a survey of analysts by S&P. Analysts expect it will earn $2.83 per share in 2012, and that that will grow to $3.17, or by 12% in 2013. It's the top holding of the Wasatch fund. Copart announced March 12 that its board of directors has approved a two-for-one split of its common stock. Additional shares issued as a result of the stock dividend will be distributed after the close of trading on March 28 to stockholders of record on March 23, it said.

9. Liz Claiborne ( LIZ)

Company profile: Liz Claiborne, with a market value of $1.2 billion, designs, sources, and markets apparel and accessories under a wide range of brands and sells its merchandise to high-end and mid-tier department stores and through its own stores.

Investor takeaway: Its shares are up 40% this year and have a three-year, average annual return of 83%. Analysts give its shares one "buy" ratings, one "buy/holds," four "holds," and one "weak hold," according to a survey of analysts by S&P. It's the top holding and one of the best performers for the Nicholas fund.

8. DealerTrack Holdings ( TRAK)

Company profile: DealerTrack, with a market value of $1.3 billion, is a software firm focused on the automotive retail industry. It uses the Internet to link auto dealers with banks, finance companies, credit unions, and other financing sources. It has over 20,000 auto dealers using its network.

Investor takeaway: Its shares are up 12.5% this year and have a three-year, average annual return of 34%. Analysts give its shares two "buy" ratings, one "buy/holds," five "holds," and one "weak hold," according to a survey of analysts by S&P. Those analysts expect it to earn $1.03 per share this year and grow by 20% to $1.24 in 2013. It should benefit from the growing pace of auto sales. It's the top holding in the Loomis Sales fund.

7. Life Time Fitness ( LTM)

Company profile: Life Time, with a market value of $2.1 billion, is an operator of upscale health clubs that is growing rapidly.

Investor takeaway: Its shares are up 9.5% this year and have a three-year, average annual return of 72%. Analysts give its shares three "buy" ratings, two "buy/holds," four "holds," and one "weak hold," according to a survey of analysts by S&P. Morningstar says that it is in an industry characterized by intense competition and thin profitability, but the company has "performed admirably" and set itself apart "by offering a high-quality member experience through large resort-like centers." This stock is a top five holding of both the Loomis Sales and Wasatch funds.

6. InnerWorkings ( INWK)

Company profile: InnerWorkings, with a market value of $547 million, provides print procurement solutions to corporate clients and working as an intermediary between thousands of print shops and client companies that need their services. It profits by using a database and a competitive bid process to match a client's print order with the appropriate service provider.

Investor takeaway: Its shares are up 26% this year, and have a three-year, average annual return of 49%. Analysts give its shares three "buy" ratings, one "buy/hold," and one "hold," according to a survey of analysts by S&P. It's a top performer for the Nicholas fund. It's expected to earn 45 cents per share this year, rising to 58 cents in 2013.

5. Ulta Salon Cosmetics & Fragrances ( ULTA)

Company profile: Ulta Salon Cosmetics, with a market value of $6 billion, is a beauty-care retailer that sells items ranging from mass-channel brands to high-end prestige labels. It operates more than 400 of its own stores and sells in others boutiques as well.

Investor takeaway: Its shares are up 41% this year and have a three-year, average annual return of 100%. Analysts give its shares three "buy" ratings, three "buy/holds," and four "holds," according to a survey of analysts by S&P. It's the third-largest holding in the Loomis fund.

4. First Cash Financial ( FCFS)

Company profile: First Cash Financial Services with a market value of $1.3 billion, owns and operates more than 250 pawnshops. The company lends money against pledged tangible personal property.

Investor takeaway: Its shares are up 22% this year and have a three-year, average annual return of 47%. Analysts give its shares five "buy" ratings, three "buy/holds," and two "holds," according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate it will earn $2.69 per share and that that will grow by 18% next year, to $3.18 per share. It's a top 20 holding of the Wasatch fund.

3. Sourcefire ( FIRE)

Company profile: Sourcefire, with a market value of $1.4 billion, sells computer network security products that are based on the open-source Snort software. Its customers include corporate clients and even government agencies.

Investor takeaway: Its shares are up 46% this year and have a three-year, average annual return of 88%. Analysts give its shares six "buy" ratings, three "buy/holds," and nine "holds," according to a survey of analysts by S&P. It's the Loomis Sales fund second-best performer this year.

2. Idex ( IEX)

Company profile: Idex, with a market value of $3.4 billion, makes and sells products in the following areas: fluid and metering technologies (48% of revenue); health and science technologies; dispensing equipment; and fire and safety products.

Investor takeaway: Its shares are up 13% this year and have a three-year, average annual return of 28%. Analysts give its shares seven "buy" ratings, one "buy/hold," and five "holds," according to a survey of analysts by S&P. It's expected to earn $2.79 per share this year and 3.13% next year. Net income has grown at an average rate of 16% over the past three years. It's the Wasatch fund's third-largest holding.

1. Herbalife ( HLF)

Company profile: Herbalife, with a market value of $8.2 billion, sells weight-management, nutrition, energy and fitness, and personal-care products through its direct sales network of distributors in more than 70 countries. It has been criticized for the claims of some of its distributors in what is a network marketing business that relies on new recruits.

Investor takeaway: Its shares are up 38% this year and have a three-year, average annual return of 121%. Analysts give its shares nine "buy" ratings, one "buy/hold," and two "holds," according to a survey of analysts by S&P. It's the Wasatch fund's second-best performer.

>>To see these stocks in action, visit the 10 Small-Cap Stocks Safe for Skittish Investors portfolio on Stockpickr.

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

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