Our screening process turned up three small-cap companies that continue to reap the rewards of investing heavily in their own businesses. For downside protection, we’ve focused on stocks that trade at a discount to their peers or their own historical price-to-earnings ratios. As always, clean balance sheets are a must.

Healthy Growth

The health care industry has struggled against the uncertainties associated with health care reform and a customer base buffeted by elevated unemployment, minimal wage growth and rising out-of-pocket costs for medical treatments.

AmSurg Corp (NSDQ: AMSG), which operates 202 outpatient surgery centers in partnership with local medical groups, continues to wrestle with these challenges. Not only are cost-conscious consumers opting out of elective treatments and routine screening procedures, but worries that insurance reimbursement rates will stagnate or decline have also weighed on stock prices in the industry.

Despite these headwinds, several factors make Amsurg’s shares a compelling buy if you have a longer time horizon.

The company’s partnerships with local physician groups bolster patient referral rates. Giving doctors an ownership stake in each surgery center also provides them with an incentive to reduce operating costs. Because AmSurg’s facilities lack emergency rooms—which by law must treat uninsured patients in need of care—the company’s bad debt expenses pale in comparison to the write-offs that plague many hospitals.

AmSurg’s 32.3 percent operating margin at a time when Medicare and Medicaid reimbursements have remained flat is a testament to the firm’s competitive advantages.

Meanwhile, many medical procedures once performed exclusively in hospitals because of higher risk or the need for heavy sedation regularly take place in an outpatient setting now that doctors have grown comfortable with these treatments. AmSurg has expanded the number of procedures available at its facilities and offers these treatments at much lower costs than traditional hospitals.

With about 2,200 players in the ambulatory surgery space, competition is intense and consolidation continues apace. AmSurg pursues an aggressive acquisition strategy and recently purchased 18 outpatient surgery centers from National Surgical Care for $173.5 million. Management has indicated that future deals are in the works. Nevertheless, the company’s debt-to-equity ratio hovers around 0.5; the firm hasn’t taken on too much leverage in its efforts to grow its business footprint.

As the employment situation improves and consumers grow in confidence, customer traffic and procedure volumes should pick up at ambulatory surgical centers. Over the long term, an aging US population should continue to drive demand for health care services.

Although cardiovascular disease is one of the leading causes of death in the US, America doesn’t have sole purchase on heart ailments; as consumers in emerging markets eat fattier foods and adopt increasingly sedentary lifestyles, these nations will face their own epidemic. Vascular Solutions (NSDQ: VASC) is well-positioned to benefit from this trend.

The company develops and markets a wide range of medical devices used in cardiac procedures, as well as hemostats used to control bleeding and laser devices that treat varicose veins. The firm’s commitment to innovation has produced more then 50 product launches since 2003, including 10 in 2010.

Because adverse cardiac events occur on their own schedule, Vascular Solutions’ cardiology sales were relatively insulated from patients delaying medical procedures. By the same token, the firm’s D-stat hemostats line is also used to treat trauma patients, another end market that’s not sensitive to economic weakness.

Although Vascular Solutions boasts a long history of robust revenue growth, intense competition prevented the firm from turning an annual profit until 2008. The inflection point occurred when the recession and credit crunch forced rivals to refocus their businesses or consolidate, providing Vascular Solutions with an opportunity to win market share through organic growth and acquisitions.

Management expects the company to generate 15 percent more revenue in 2011, which would mark the eighth consecutive year of double-digit sales growth. International sales accounted for roughly 12 percent of 2008 revenue.

With strong growth prospects and a market cap of about $200 million, the company could be an appealing takeover target for a bigger outfit.

A Touching Story

Synaptics (NSDQ: SYNA) designs and sells human-interface technology for a host of consumer electronics, including the touch pad on your laptop

In recent years, the company has shifted its emphasis from manual interface technologies to touch-screen applications, winning design work for Research in Motion’s (NSDQ: RIMM) Blackberry smart phones and handsets that run Google’s (NSDQ: GOOG) Android operating system. This strategic shift provides exposure to the high-growth market for next-generation smart phones, tablet PCs and laptops.

Some investors worry that management’s decision to enter this highly competitive market could backfire. But Synaptics has developed technology that embeds touch sensors directly into LCD screens. This innovation should reduce the cost of manufacturing touch screens by 50 to 80 percent and would be a major competitive edge. With about 50 percent of handsets expected to include touch screens by 2014, Synaptics’ industry-leading technology should continue to win market share.