Our small-cap portfolio employs strategies used by Chuck Royce, founder of Royce Funds and a pioneer in small-cap investing.

We based our screen on Royce's time-tested technique for identifying profitable and well-run small caps - those with market values of $250 million to $2.5 billion. We required at least 8% return on assets (net income divided by total assets) and positive free-cash flow (Royce did not comment on our screen).

We also looked for low P/E and price-to-book ratios relative to the Russell 2000 index. And we considered only small caps with share prices below $35, as they are less likely to be covered by Wall Street analysts or heavily owned by institutions, giving regular investors a leg up.

Our small-cap choices last year posted an enviable 28% gain.

Company (Ticker symbol)	Current price	52-wk high	52-wk low	Market Cap (mill)	P/E ratio	Return on assets	Free Cash Flow
CSG Systems International (CSGS)	$12.81	$28.22	$10.49	$447.45	19.3	9%	$82 million
Grey Wolf (GW)	$7.69	$8.60	$4.85	$1,374.39	7.8	20%	$91 million
Hercules (HPC)	$20.43	$22.48	$14.90	$2,310.90	13.6	9%	$79 million
K-Swiss (KSWS)	$15.88	$29.75	$13.89	$550.82	13.9	19%	$62 million
Navigant Consulting (NCI)	$21.74	$22.05	$10.92	$1,049.80	20.4	9%	$56 million
Park Electrochemical (PKE)	$29.12	$37.17	$21.11	$592.50	16.4	9%	$6 million
Penn Virginia Resource (PVR)	$27.02	$32.90	$18.00	$1,245.78	19.0	10%	$31 million
Plexus (PLXS)	$26.99	$32.47	$17.78	$1,144.40	13.4	10%	$71 million
Current price, 52-week high/low and market cap as of May 15 16:00 P/E based on earnings for the last 12 months. Earnings growth based on analyst projections for the next five years, according to Baseline.