Color to the Numbers: Top Small-Cap Value Stocks

Financial websites have given investors more tools than ever to screen the markets for stock ideas. But those screens only provide the raw numbers -- not the story behind them. What might look like the start of a trend could merely be a one-time blip. Let's enlist Motley Fool CAPS to color in the outlines these numbers create.

To find the cream of the crop of small-cap value stocks -- those combining strong fundamentals with a good price -- we'll screen for stocks with:

• Market caps between $100 million and $1 billion
• Debt-to-equity ratios of less than 0.5
• Free cash flow of at least $5 million
• Projected five-year earnings growth rates of at least 15%
• Forward price-to-earnings ratios of less than 15

Then we'll tap the collective intelligence of our 80,000-plus CAPS investors to see whether these companies present real opportunities, or are priced low for a reason.

Opinions with the numbers
Here's a sampling from the list of stocks our screen pulled up.

Staffing up in a down world
A sobering economy takes plenty of victims in the stock market, especially business services companies. The shares of human resource services provider and Motley Fool Inside Value recommendation Administaff have been down by more than 30% in the past three months following a third-quarter earnings report that left investors uninspired. While the company turned in many positive data points -- such as a 9.7% increase in the average number of worksite employees -- there are concerns about increased costs and lower profits per covered employee.

Administaff is wrestling with some internal growth issues, such as growing into the larger medium-sized business segment, but I suspect much of the pessimism around the stock is tied to events at competitors like Paychex (Nasdaq: PAYX) and investors' outlook on the larger economy. But outsourced services don't necessarily swoon in tandem with the companies they serve. Sometimes a tougher operating environment even benefits firms like Administaff as more firms consider outsourcing to save on costs.

Management makes no bones about the value it feels the company presents right now -- the board of directors again authorized a quarterly dividend and increased an already generous share repurchase authorization. With strong fundamentals underlying the business and stable cash flow, many investors agree as well: In CAPS, 168 of the 180 investors rating the company believe it will beat the market going forward.

A bitter pill
Nutrition supplement firm Mannatech elicits less favor from the CAPS community, despite a forward earnings multiple of less than four. Some investors eschew multilevel marketing (MLM) organizations for their business practices regardless of their success in generating profits for shareholders. But even those who overlook such methods have risks to face with Mannatech -- the firm recently attracted the attention of the Texas attorney general, who sued the company for deceptive trade practices in July 2007.

The suit has led Mannatech to change its sales practices and even remove co-founder Sam Caster from the CEO position, though he's still chairman. Caster's continued involvement with the company and its sales force apparently caused a rift with its auditor, Grant Thornton, which ultimately led to it being dismissed in August.

With so many lingering legal and ethical issues circling Mannatech, I'm joining a strong contingent of CAPS investors -- and nearly two-thirds of All-Stars rating the company -- that recommends steering clear of the company.

Let 80,000 investors be the judge
The collective wisdom of a huge pool of investors can quickly add color to a whitewashed page of numbers. But even with an entire community of qualified opinions acting as the judge, individual investors are still the jury and should perform their own research.

Want to see your favorite screen results run through the wringer in the CAPS community? It's free to tap the knowledge base and even give your own opinion in Motley Fool CAPS.