Celebrated investor James O’Shaughnessy wrote What Works on Wall Street (1996) after conducting exhaustive research concerning the performance of a host of investment strategies. This work led to the development of his Cornerstone Growth Strategy, outlined by Validea CEO John Reese in this week’s TheStreet.

Using the screening model Reese fashioned after the O’Shaughnessy strategy, he identified the following 7 small-cap picks:

Of the seven, he highlighted the following stocks that scored well under other Validea models:

• Huntington Ingalls Industries (HII) designs, builds, overhauls and repairs ships for the U.S. Coast Guard and the U.S. Navy and scores well based on the ratio of price-earnings to growth in earnings-per-share (PEG), a Peter Lynch earmark metric.
• IES Holdings (IES) provides technology infrastructure, electrical installation and mechanical design solutions for commercial, industrial and residential applications. The company scores well based on its low price-sales ratio and modest leverage as well as positive free cash-per-share.
• SAIA (SAIA) provides a range of expedited and logistics services across the U.S. and is favored for its price-sales ratio as well as long-term growth in earnings-per-share and free cash flow-per-share.