The Oct. 27 issue of Forbes magazine contains a list of the 200 best small companies based on return on equity, sales growth and profit growth, measured over one-year and five-year periods. All companies on the list had revenues of $5 million to $750 million and stocks selling for at least $5 per share.

Stockpickr has created a portfolio from this list called Top 10 Best Small Companies.

One of the top small companies is Quality Systems (QSII), in the No. 4 position. This $900 million market-cap stock is a provider of health care information systems. On. Oct. 27, the company was named one of TheStreet.com Ratings'top five fast-growth stocks, which are stocks projected to increase revenue and profit by at least 12% in the coming year. Quality Systems has a P/E of 20, which is a bit on the high side for this market but is reasonable for a strong growth stock, and a favorable PEG ratio of 1.09. It pays a yield of 3.5%.

The stock shows up in an Aug. 8 Stockpickr portfolio called Dividend Raisers for the Week because the company raised its dividend last quarter. Other stocks in that portfolio include Murphy Oil (MUR), with a P/E of 5; Dover (DOV), with a P/E of 8; and Nordic American Tanker Shipping (NAT), with a P/E of 9, a stock Jim Cramer is bullish on.

Another small company in the top 10 is PetMed Express (PETS), in the No. 5 position. This marketer of pet medications and other pet health products was named as one of the TheStreet.com Ratings'top five small-caps for Nov. 14. On Nov. 3, the company announced its second $20 million share repurchase program. The stock has a P/E of 20 and a reasonable PEG ratio of 1.05.

PetMed Express is owned by the Munder Internet Fund, which has a Morningstar rating of three stars and is managed by Kenneth Smith. The fund has had an average annual return of 1.27% over the last five years. Munder also owns Cisco (CSCO), with a P/E of 13; Yahoo! (YHOO), with a P/E of 14; and Google (GOOG), which has a P/E of 17 and was one of the 10 most-searched stocks on TheStreet.com on Nov. 18.


For more ideas, check out the Top 10 Best Small Companies portfolio at Stockpickr.com.

Posted on Nov. 23, 2008