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NEW YORK (Scott's Investments) -- Below is a list of 10 small-cap stocks with recent earnings surprises to consider in the short (or long) term.

For the purpose of this monthly list, I define "value" as a stock with a projected current-year P/E of under 20 and a price-to-earnings-growth ratio under 1. "Small-cap" is defined as having a market capitalization under $1 billion. An "earnings surprise" is defined as a stock that has beaten estimates the past two quarters and has an average earnings surprise of 20% or more for the past four quarters. I also require stocks to be trading above their 200-day simple moving average. I use stockscreen123 as the tool and screener.

Last month's list performed poorly, returning -11.60% (excluding any dividends), compared with -3.67% for SPDR S&P 500 (SPY) and -3.93% for Vanguard Small Cap Value ETF (VBR).

As I've stated in the past, this is a "risk-on, risk-off" trade. Even before the disaster in Japan, equity investors recently began taking profits. As investors take the risk off the table, screens such as this one may suffer.

Why do I track this screen? I find PEG an effective ratio for identifying growth stocks at a reasonable value. In addition, a recent history of earnings increases could, in theory, help identify companies with the ability to continue to surprise.

Backtesting this screen with a rebalance period of every four weeks and a maximum position size of 10% (in instances when fewer than 10 companies qualify) has produced solid five-, three- and one-year returns (see December's list for a backtest). A quick visual inspection shows this screen has done well as a high-beta play, outperforming in positive market environments and struggling in down markets. Also, a four-week rebalance period can lead to high turnover and transaction costs.

I exclude OTC stocks, and I further narrow the list based on additional stockscreen123 fundamental factors to 10 stocks or fewer. The list, as always, is not a specific portfolio but a recommendation for further research. Since this is a purely mechanical screen, I play no discretion in the results (other than establishing the original screen criteria). Of note, Metropolitan Health Networks (MDF) has been a qualifying stock on this list since May but is no longer on this month's list due to a recent earnings surprise coming in at 2.41%, less than the required 20%.

Chart courtesy of Finviz.

This month's list consists of the following 10 stocks (no disclosures):

Scott's Investments focuses on consolidating and tracking free online investment resources for the public with an emphasis on ETFs, portfolio/trading strategies and macroeconomics. Follow Scott's Investments on Twitter.