Oct. 19 (Bloomberg) -- I have nothing against large companies, but my heart belongs to small-cap value stocks.

As I see it, the chances of finding a gem in the rough are greater with small stocks. They are less followed by analysts and investors, so the opportunities haven’t been exhaustively picked over.

Last week I screened the 2,131 U.S. stocks with a market value between $250 million and $2 billion, using these filters:

-- Five-year sales and earnings growth averaging 10 percent a year or better.

-- Debt less than 50 percent of stockholders’ equity.

-- Price-to-earnings ratio below 15, measured on both the actual earnings for the trailing four quarters and the estimated earnings for 2009.

-- Price-to-book ratio (stock price divided by corporate net worth per share) and price-to-sales ratio (stock price divided by per-share sales) both below two.

Here’s a run-down, in alphabetical order, of the stocks that survived these screens.

Aaron’s Inc., formerly known as Aaron Rents Inc., operates a so-called rent-to-own business. The Atlanta-based company leases appliances and furniture to mostly low-income consumers. If their monthly payments hit a certain total, the customers own the item. If not, they return it when they are done renting it.

The industry has been hit with complaints that center on the high ultimate cost of the items, and alleged high pressure tactics in sales and collections.

Whatever one thinks of the industry, Aaron’s financial results are attractive. Sales have grown at a 16 percent annual clip the past five years, earnings at 18 percent. This year analysts think it will post record earnings of $1.99 a share.

Consistent Earnings Growth

Amedisys Inc., located in Baton Rouge, Louisiana, provides home health-care services and operates walk-in surgery centers. Since 2000 it has increased its earnings each year except for a small drop in 2003. This year analysts expect a 47 percent earnings jump, to $4.86 a share.

America’s Car-Mart Inc. operates car and truck dealerships in the South, serving mostly consumers with poor credit histories. That may seem like an iffy business model, but the company must be doing something right. The Bentonville, Arkansas, company posted higher earnings in eight of the past 10 years.

Worrisome Transaction

American Oriental Bioengineering Inc., based in Shenzhen, China, sells pharmaceuticals derived from traditional Chinese medicines. Its sales and earnings numbers look fine, but I am concerned about a $70 million real estate purchase in Beijing it made last year. The company has said it plans to use the site as a convention and training center.

The wisdom of the transaction has been questioned by analysts, including one at Piper Jaffray who has a negative rating on the stock.

Amerigroup Corp., with headquarters in Virginia Beach, Virginia, runs managed-care programs for Medicaid recipients in 11 states. Medicaid is the joint federal and state program providing health care for poor people.

Medicaid is a scary area because state and federal governments often face budget pressures to cut benefits. Yet, with the stock trading at less than seven times earnings and 0.25 times revenue, I think the risk-reward ratio looks good.

Esterline Tecnhologies Corp., discussed in last week’s column, makes controls for military and civilian planes, electronic warfare devices, and materials that can resist extreme temperatures. The Bellevue, Washington, company’s stock trades for just over book value and 11 times earnings.

EZCorp., JDA Software

Austin, Texas-based EZCorp Inc. runs a chain of pawn shops and makes payday loans. After two losing years in 2000 and 2001, its earnings have marched higher every year. Six of seven analysts who follow the stock recommend it.

One possible cloud: Payday loans, the fastest growing part of the company’s business, are controversial and may come under increasing regulation.

JDA Software Group Inc., based in Scottsdale, Arizona, makes software used by supply chain managers and Internet commerce businesses. It met the valuation tests when I ran my screen, but narrowly misses a couple of them now. I would consider buying it on dips.

Meadowbrook Insurance Group, Inc., out of Southfield, Michigan is an insurance agency that does risk-management consulting and reinsurance brokering among other things. The company has been profitable since 2002, and at less than book value the stock looks cheap.

Ignore the Analysts

Navigators Group Inc., based in New York, writes marine, energy and construction-engineering insurance policies worldwide. This year should be its 10th straight year of profitability. Most analysts dislike the stock, but I find it appealing at 13 times earnings and 1.3 times book value.

Powell Industries Inc., which I last recommended in this column in 2002, makes equipment used to transmit and regulate electrical power. Among its big customers are utilities, refineries, energy companies and transportation companies. A strong balance sheet, with debt only 6 percent of equity, is one of the draws for this Houston-based company.

Rounding out the list is Sterling Construction Co., a civil engineering and construction company also located in Houston. It paves highways, builds bridges, constructs sewers and does other projects for government customers. As a sideline it distributes pet supplies, automotive accessories and lawn-and-garden products. Six of eight analysts tracking the stock recommend it.

Disclosure note: For clients and personally, I own shares in Amedisys, Esterline and Powell Industries.

(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)

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To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com.

Last Updated: October 18, 2009 21:00 EDT