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Small-cap stocks have always been undervalued or overvalued, primarily because they are ignored by large investors like mutual funds. Billionaire David Einhorn is the most noteworthy hedge fund managers in the world, at least that's what I feel. The popular hedge fund picks have averaged above 17% year every year and have returned above 35% since September of last year. If investors do opt to make a few purchases among hedge funds' small caps, it would be wise of them to opt for top recommendations from various categories and researching them accordingly. Here's a list of Mr. Einhorn's small-cap picks.

Mr. Einhorn owns close to 5 million shares of the insurance and reinsurance company Aspen Insurance Holdings (AHL). This company does have interesting figures, it trades at a P/B ratio of 0.7 and is at a discount to its equity book value. The earnings have been fluctuating between the multiples of 10 and 11, with revenues also increasing. It would be worth double checking on its competitors as well, they might have similar figures. AHL is trading at $37.6 with a market cap of $2.41 billion.

At the end of March, Einhorn was reported to own 2 million shares of DST services (DST), a customer service IT company. DST had a sudden rise in its earnings recently, and interestingly, this was not related to the core business of the company. When compared to the previous year performance, the company did seem to have an increase in revenue and operating income. At present, the stock trades 14 times its forward earnings estimates and it does need growth in terms of overall earnings, but recent performance suggests that the current valuations are not too high. There does seem to be enough and more value in this company. DST is trading at $68.3 with a Market cap of $2.96 billion.

Mr. Einhorn disclosed owning 4 million shares of Babcock & Wilcox (BWC) another small-cap he has faith in. The company is known for supplying nuclear reactors to the U.S. navy for the construction of ships. BWC also provides key components to power plants. Wall Street analysts are pretty firm on the fact that there would not be any decline in military purchases for BWC. They also forecast a 5 year PEG ratio of 0.7 and a forward P/E ratio of 0.7. I'd double check on the chances of such forecasts, but let's face it-- military purchases are the key for this company. BWC is trading at $29.68 with a market cap of 3.32 billion.

By the end of Q1 this year, Mr. Einhorn cut 25% of his stake and still owned 2.5 million shares of the asset management company Legg Mason (LM). Compared to the previous fiscal year, the net income of this company was down, but ironically, Leg Mason is priced at a discount to book value (a rather small one though). This stock is cheap enough not to be a good short, though shorts are significantly responsible for 10% of the float. In all honesty, this company is worth a wait and I wouldn't recommend investing in LM just yet. LM is trading at $35.04 with a market cap of $4.37 billion.

Last but not the least, Mr. Einhorn owns 1.2 million shares of the tech and management services company AECOM (ACM). The company is now worth $3.2 billion and when compared to the previous year, AECOM's earnings were up by 10%. This company's stock price has managed to increase by 90% and is valued at 11 times the earnings of the fiscal year ending September 2014. Though AECOM does look like a stock with a lot of potential, the lower sales figures cause some concern. ACM is trading at $30.79 with a market cap of $3.14 billion.

Among this list, the majority of these small-cap picks do look like they could be cheap. Legg Mason could be the odd one out because of the company's recent poor performance. The rest are priced below book value as per their earnings or equity value. I'd recommend doing extensive research on any of the companies that come across as an interesting choice.

Source: David Einhorn's Recent Small-Cap Stock Picks