(FORTUNE Magazine) – Large returns often come in small, overlooked packages. In our search for companies on the verge of the big time, we screened for U.S. stocks with market caps between $250 million and $2 billion and an average daily trading volume of more than 100,000 shares. To identify the most profitable and well-managed firms, we required at least an 8% return on assets (net income divided by total assets) and positive free cash flow. We looked for stocks with low P/E and price-to-book ratios relative to the small-cap Russell 2000 index. And we considered only companies with stock prices below $35 a share, because they are less likely to be covered by Wall Street analysts or to be heavily owned by institutions. --D.S.

Our Picks

June 24, 2005. Based on the previous 12-months' reported earnings. Latest fiscal year.

FORTUNE TABLE / SOURCE: VALUE LINE