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As we update our quantitative ranking screen of stocks for the month of May, we are going to break our results down further to include various categories of stocks, with the results eventually culminating with our top 25 overall list for the month. Today, the focus is on micro- and small-caps, which we define as any company with a market capitalization under $500 million. By our count, there are 1,547 companies currently meeting that criteria. The top 5 are:

1. Vaalco Energy (NYSE:EGY). An independent oil and gas driller, Vaalco owns fields in the nation of Gabon, Angola, Texas, and the Gulf of Mexico. At year end 2006, Vaalco had approximately 6 million barrels of proven oil reserves, and the company sports a strong balance sheet with next to no debt and almost 20% of its share price in cash.

EGY 1-yr chart

EGY

2. AMREP (NYSE:AXR). AMREP has multiple operating channels, as it owns residential, commercial, and industrial real estate as well as offering services for magazines, such as subscription fulfillment, listings, customer telephone support, and newsstand distribution.

AXR 1-yr chart

AXR

3. US Physical Therapy (NYSE:USPH). An operator of outpatient physical and occupational therapy clinics, it manages 292 locations in 41 states in addition to 4 third-party sites. Shares trade for 11.5x free cash flow and 6.6x EBITDA.

USPH 1-yr chart

USPH

4. CPI Corp. (NYSE:CPY). CPI runs Sears Portrait Studios, searsphotos.com, and searsportraits.com. The company offers professional portrait photography at over 1,000 Sears locations. Shares trade for 9x free cash flow and 8x EBITDA.

CPY 1-yr chart

CPY

5. RELM Wireless (NYSEMKT:RWC). Tiny RELM sells wireless communication devices to government, public safety, business, and industrial users. The company has 21.5% EBITDA margins, a cash position equal to more than 25% of its share price, and trades for less than 5x free cash flow and 5.5x EBITDA. Shares are at the bottom of its 52-week trading range.

RWC 1-yr chart

RWC

Just as with the mega-cap picks, an energy stock holds the #1 ranking in a model that searches for the best combination of profitability and valuation. Other than that similarity, the rest of the picks are small, boring companies - perhaps the ideal circumstances for stumbling upon a great value buy.


Disclosure: none

Source: Five Small Cap Picks for May: Small and Boring - The Ideal Value Buy