(FORTUNE Small Business) – Investing in small companies sounds like a great idea, but it's hard to know where to start looking. That's why we asked 12 of the smartest small-cap-fund managers we know to recommend their favorite companies. Below, the result: our 50 small-cap stocks to watch. Get a snapshot of where these firms are today, as well as where they're trading. (We looked at price to cash flow, a more common measure than P/E for most small firms.) You'll also see why our experts think these stocks are poised to break out; some may not be small cap for long. You heard it here first. --ANDREW RAFALAF

FUND MANAGER 2001 2001 MARKET REVENUES EARNINGS CAP RECOMMENDED COMPANY (TICKER) (MILLIONS) (MILLIONS) (MILLIONS)

JOHN WALLACE/JOHN SEABERN RS Diversified Growth

Alloy (ALOY) $165.62 -$15.60 $545.88 Coinstar (CSTR) 129.35 -7.39 687.79 Intergraph (INGR) 532.06 19.94 791.69 Martek Biosciences (MATK) 18.82 -13.70 577.70 iManage (IMAN) 38.86 -19.75 167.27

WHITNEY GEORGE/BONIFACE ZAINO The Royce Funds

3TEC Energy (TTEN) $122.80 $16.80 $282.67 Input/Output (IO) 212.05 9.34 464.46 Midwest Grain Products (MWGP) 229.24 2.66 110.85 Steinway Musical Instruments (LVB) 352.61 11.32 184.24 Modem Media (MMPT) 103.04 -6.79 97.35

RALPH WANGER Liberty Acorn Funds

Christopher & Banks (CHBS) $209.16 $25.53 $761.99 Helen of Troy (HELE) 361.40 17.33 348.56 Labor Ready (LRW) 916.97 9.22 263.36 Commonwealth Telephone (CTCO) 306.61 43.13 1,031.97 Vail Resorts (MTN) 559.28 18.70 678.78

DAN VERU GE Small-Cap Value Equity

The Cooper Companies (COO) $234.57 $37.14 $714.06 Genesee & Wyoming (GNWR) 173.58 19.08 313.60 InterTAN (ITN) 468.76 23.53 287.15 Strayer Education (STRA) 92.88 5.01 421.02 Kansas City Southern Industries (KSU) 577.30 30.70 907.66

CARL WILK Munder Micro-Cap Equity

QuadraMed (QMDC) $129.43 $15.48 $234.82 MIM (MIMS) 456.65 14.20 381.66 Merit Medical Systems (MMSI) 104.04 6.74 173.10 White Electronic Designs (WEDC) 96.76 3.27 136.93 Craftmade International (CRFT) 93.48 4.69 102.67

BOB PERKINS Berger Small-Cap Value

JDN Realty (JDN) $103.30 -$4.10 $446.88 Cognex (CGNX) 140.73 -11.13 1,140.77 Newport (NEWP) 318.87 -6.27 927.54 Dycom Industries (DY) 826.75 61.41 707.40 Micromuse (MUSE) 212.51 21.27 730.26

DAVID KERN Fremont Small-Cap

Pemstar (PMTR) $635.31 $6.68 $389.40 Therasense (THER) 71.86 -52.87 809.15 ArthroCare (ARTC) 83.32 10.06 353.16 Eclipsys (ECLP) 236.99 4.41 704.32 Harvard Bioscience (HBIO) 40.87 -5.21 253.49

JOHN MONTGOMERY Bridgeway Funds

Singing Machine (SMD) $34.31 $4.16 $124.27 Amer. Home Mortgage Hldgs. (AHMH) 128.05 25.45 161.33 KCS Energy (KCS) 190.51 41.52 97.45 Sanderson Farms (SAFM) 706.00 27.78 332.27 Movie Gallery (MOVI) 369.13 14.36 381.55

RYAN CRANE AIM Small-Cap Growth

The Corporate Executive Board (EXBD) $128.11 $21.63 $1,290.10 Monaco Coach (MNC) 937.07 24.92 826.34 Macromedia (MACR) 389.60 13.37 1,200.44 ChipPAC (CHPC) 328.70 -93.74 710.69 Euronet Worldwide (EEFT) 64.17 0.67 439.76

CHRISTOPHER CORAPI Credit Suisse Small-Cap Value

ESCO Technologies (ESE) $344.90 $30.11 $470.86 Progress Software (PRGS) 262.00 17.64 639.62 Independent Bank (IBCP) 141.36 24.40 325.48 AptarGroup (ATR) 891.99 58.84 1,222.42 Oceaneering International (OII) 523.82 33.11 639.43

3-YEAR PRICE PROJECTED TOTAL /CASH 2002 EPS [RECOMMENDED COMPANY (TICKER)] RETURN FLOW GROWTH

[Alloy (ALOY)] --[1] --[2] --[3] [Coinstar (CSTR)] 132.56% 16.88 --[3] [Intergraph (INGR)] 138.96 --2 257.14% [Martek Biosciences (MATK)] 171.88 --[2] --[3] [iManage (IMAN)] -75.44 --[2] --[3] [3TEC Energy (TTEN)] 107.41% 2.63 -56.83% [Input/Output (IO)] 12.27 18.40 --[3] [Midwest Grain Products (MWGP)] -13.07 2.76 N.A. [Steinway Musical Instruments (LVB)] -36.12 14.04 49.60 [Modem Media (MMPT)] --[1] 4.67 --[3] [Christopher & Banks (CHBS)] 1,725.16% 21.04 25.60% [Helen of Troy (HELE)] -15.51 59.87 66.67 [Labor Ready (LRW)] -61.07 6.00 -27.39 [Commonwealth Telephone (CTCO)] 35.82 9.21 34.31 [Vail Resorts (MTN)] -19.41 5.89 21.70 [The Cooper Companies (COO)] 143.05% 27.43 25.57% [Genesee & Wyoming (GNWR)] 284.12 9.07 7.48 [InterTAN (ITN)] 224.13 --[2] 6.09 [Strayer Education (STRA)] 41.77 24.93 11.80 [Kansas City Southern Industries (KSU)] 388.04 --[2] 52.60 [QuadraMed (QMDC)] -58.78% 96.62 -10.00% [MIM (MIMS)] 427.41 41.28 34.84 [Merit Medical Systems (MMSI)] 252.45 8.70 27.46 [White Electronic Designs (WEDC)] 368.57 7.49 68.75 [Craftmade International (CRFT)] -0.42 8.31 28.48 [JDN Realty (JDN)] -23.15% --[2] --[3] [Cognex (CGNX)] 28.05 --[2] --[3] [Newport (NEWP)] 243.32 --[2] --[3] [Dycom Industries (DY)] -34.18 5.32 -58.26% [Micromuse (MUSE)] 207.69 18.85 -26.67 [Pemstar (PMTR)] --[1] --[2] 38.80% [Therasense (THER)] --[1] --[2] --[3] [ArthroCare (ARTC)] 64.87% --[2] 8.60 [Eclipsys (ECLP)] -42.24 24.64 488.89 [Harvard Bioscience (HBIO)] 0.66 --[2] --[3] [Singing Machine (SMD)] 5,169.11% --[2] N.A. [Amer. Home Mortgage Hldgs. (AHMH)] 84.00 --[2] 11.68% [KCS Energy (KCS)] 6.56 0.42 28.87 [Sanderson Farms (SAFM)] 47.26 5.13 7.84 [Movie Gallery (MOVI)] 412.84 3.59 79.25 [The Corporate Executive Board (EXBD)] 31.36% 26.16 28.47% [Monaco Coach (MNC)] 85.69 39.23 66.82 [Macromedia (MACR)] -47.16 --[2] --[3] [ChipPAC (CHPC)] 149.94 --[2] --[3] [Euronet Worldwide (EEFT)] 573.49 --[2] 166.67 [ESCO Technologies (ESE)] 280.58% 13.42 -24.98% [Progress Software (PRGS)] 2.40 20.14 18.48 [Independent Bank (IBCP)] 71.62 22.56 13.90 [AptarGroup (ATR)] 27.37 10.13 22.48 [Oceaneering International (OII)] 47.47 11.03 13.26 [RECOMMENDED COMPANY (TICKER)] COMPANY DESCRIPTION

[Alloy (ALOY)] Produces youth-targeted media and direct marketing [Coinstar (CSTR)] Owns and operates network of coin-counting machines [Intergraph (INGR)] Sells Windows-based enterprise software and services [Martek Biosciences (MATK)] Develops nutritional oils derived from microalgae [iManage (IMAN)] Provides collaborative content management software [3TEC Energy (TTEN)] Searches for and produces oil and natural gas [Input/Output (IO)] Designs and manufactures seismic equipment [Midwest Grain Products (MWGP)] Produces wheat gluten and food- and fuel-grade alcohol [Steinway Musical Instruments (LVB)] Manufactures pianos and band instruments [Modem Media (MMPT)] Develops online marketing and business strategies [Christopher & Banks (CHBS)] Operates chain of women's-apparel retail stores [Helen of Troy (HELE)] Produces and markets hair dryers and other hair accessories [Labor Ready (LRW)] Provides temporary manual labor to small business markets [Commonwealth Telephone (CTCO)] Provides data and voice communication services [Vail Resorts (MTN) Operates ski resorts in Colorado [The Cooper Companies (COO)] Develops, manufactures, and markets contact lenses [Genesee & Wyoming (GNWR)] Owns and operates regional freight railroads [InterTAN (ITN)] Owns Canadian consumer electronics retail chain [Strayer Education (STRA)] Owns and operates network of universities around D.C. [Kansas City Southern Industries (KSU)] Operates system of regional railroads [QuadraMed (QMDC)] Provides software and services to the health-care industry [MIM (MIMS)] Manages pharmaceutical-benefits programs [Merit Medical Systems (MMSI)] Manufactures cardiology and radiology products [White Electronic Designs (WEDC)] Produces semiconductors for use in telecom and defense [Craftmade International (CRFT)] Designs and sells ceiling fans and lights [JDN Realty (JDN)] Owns, develops, and manages retail shopping centers [Cognex (CGNX)] Makes equipment used in semiconductor production [Newport (NEWP)] Sells semiconductor and fiber-optic testing equipment [Dycom Industries (DY)] Provides engineering and construction to telecoms [Micromuse (MUSE)] Develops and sells software that prevents network crashes [Pemstar (PMTR)] Provides manufacturing services to the technology industry [Therasense (THER)] Designs and sells glucose-monitoring systems [ArthroCare (ARTC)] Designs and builds arthroscopic surgical equipment [Eclipsys (ECLP)] Develops health-care management software [Harvard Bioscience (HBIO)] Develops and markets tools for pharmaceutical research [Singing Machine (SMD)] Produces and sells karaoke machines and music [Amer. Home Mortgage Hldgs. (AHMH)] Provides retail mortgage banking services [KCS Energy (KCS)] Natural gas and oil exploration and production [Sanderson Farms (SAFM)] Produces, processes, and sells chicken products [Movie Gallery (MOVI)] Operates regional video-store chain [The Corporate Executive Board (EXBD)] Provides corporate-strategy research to companies [Monaco Coach (MNC)] Makes high-end motor coaches and recreational vehicles [Macromedia (MACR)] Makes and markets Web-design software [ChipPAC (CHPC)] Provides semiconductor testing and packaging [Euronet Worldwide (EEFT)] Builds and supports an overseas ATM network [ESCO Technologies (ESE)] Sells filtration products to health-care and transportation markets [Progress Software (PRGS)] Develops and sells enterprise resource planning software [Independent Bank (IBCP)] Owns and operates regional banks in Michigan [AptarGroup (ATR)] Designs and manufactures specialty packaging [Oceaneering International (OII)] Provides tools and services to the oil and gas industry

[RECOMMENDED COMPANY (TICKER)] WHY THEY LIKE IT

[Alloy (ALOY)] Positive earnings expected as it moves from retail sales to higher-margin advertising revenues [Coinstar (CSTR)] Should be debt-free by year-end; exploring new products like prepaid credit cards [Intergraph (INGR)] Returning to profitability with new management team; trading at discount to its peers [Martek Biosciences (MATK)] Infant-formula additive approved by FDA; contracts signed with top two formula producers [iManage (IMAN)] Expanding into new markets; exhibited resilience in economic downturn [3TEC Energy (TTEN)] Strong market for domestic natural gas companies; great management team [Input/Output (IO)] New management team should restore great technology company to former glory [Midwest Grain Products (MWGP)] Emerging from bumpy period, but core business is solid; trading at about book value [Steinway Musical Instruments (LVB)] Cheap at only 11 times earnings; push into China should prove fruitful [Modem Media (MMPT)] Great management and clean balance sheet; strong blue-chip client roster [Christopher & Banks (CHBS)] New stores for plus-sized women pumping up growth [Helen of Troy (HELE)] Has cut costs by outsourcing production to China [Labor Ready (LRW)] Overexpansion caused earnings decline, but new management is cutting costs [Commonwealth Telephone (CTCO)] Profitable in tough industry; expanding into suburbs and offering new services like DSL [Vail Resorts (MTN) Aging baby-boomers provide good demographic for future growth in condo sales [The Cooper Companies (COO)] Strong distribution channel; high gross margins on astigmatic lenses [Genesee & Wyoming (GNWR)] Strong balance sheet; expected to make an acquisition this year [InterTAN (ITN)] Recurring revenue stream from satellite TV service sales; using cash to repurchase shares [Strayer Education (STRA)] Enormous free cash flow; stock not cheap, but great growth prospects [Kansas City Southern Industries (KSU)] 50% ownership of largest railroad in Mexico represents huge future potential [QuadraMed (QMDC)] New management brought profitability; hospital spending increases will help bottom line [MIM (MIMS)] Long-term growth rate of about 32%; trading cheaply at 17 times 2002 earnings [Merit Medical Systems (MMSI)] Small size allows it to profit in niches that larger competitors can't consider [White Electronic Designs (WEDC)] Diversifying revenue stream; should benefit from increase in defense spending [Craftmade International (CRFT)] 30% return on equity; poised to benefit from home-renovation craze [JDN Realty (JDN)] 8.5% yield, much higher than other small shopping-center REITs'; defensive play [Cognex (CGNX)] Strong balance sheet and improved market share; long-term growth of about 20% a year [Newport (NEWP)] Expects over 30% growth as semiconductor manufacturing outsourcing trend continues [Dycom Industries (DY)] With no debt and $140 million in cash, one of more conservatively run companies in group [Micromuse (MUSE)] Lack of meaningful competition; cheap in light of expected 30% to 35% long-term growth [Pemstar (PMTR)] Strong management opened facilities in low-cost areas; few competitors [Therasense (THER)] Margins improving as company grows; expects positive earnings by third quarter of 2002 [ArthroCare (ARTC)] Move to direct sales will improve bottom line in long run; tapping into new markets [Eclipsys (ECLP)] Congressional efforts to improve patient care will serve as a boon for the company [Harvard Bioscience (HBIO)] Strong distribution network; attractive new technology to accelerate drug trials [Singing Machine (SMD)] Growth seen in youth markets; management has restored company to profitability [Amer. Home Mortgage Hldgs. (AHMH)] History of solid growth should continue, even if home sales slow [KCS Energy (KCS)] Good management; leveraged bet on rising energy prices [Sanderson Farms (SAFM)] Fundamentals of the company very strong; gaining market share [Movie Gallery (MOVI)] The rural equivalent of Blockbuster; has carved out a profitable niche [The Corporate Executive Board (EXBD)] Handsome subscription fees provide stable cash flow [Monaco Coach (MNC)] Consistent earnings grower with easy-to-understand fundamentals [Macromedia (MACR)] New product cycle should be helped by stronger corporate spending in 2003 [ChipPAC (CHPC)] Relatively safe way to play growth in semiconductor industry [Euronet Worldwide (EEFT)] Lack of meaningful competition; rapid consumer adoption should fuel growth [ESCO Technologies (ESE)] Negligible debt and strong cash positions; cheap relative to its peers [Progress Software (PRGS)] Well-positioned new product line; good cash flow and no debt [Independent Bank (IBCP)] Steady growth expected; trading at only 12 times earnings and 2.7 times book value [AptarGroup (ATR)] Excellent balance sheet; dominates important niche [Oceaneering International (OII)] Improving industrial production and economy provides good backdrop for earnings growth

Data as of March 12, 2002. Source: Bloomberg and I/B/E/S Notes: N.A.: No equity analyst coverage. [1]Company is less than three years old. [2]No positive cash flow. [3]Incalculable due to a period of negative earnings.