It has been a romp for peewee power: Small stocks have outperformed large stocks for a near-record 8 1/2 consecutive years.

Trends can change overnight on Wall Street, though, and some pros suggest this could be the case soon when it comes to the peewees. With small fries not as cheap as they used to be and their price/earnings multiples higher than those of their larger counterparts, and with market volatility picking up the past couple of months — which is usually a forerunner to an investment swing toward larger, more defensive-type stocks — some pros argue that it’s time to pare holdings in the wee names.

In sharp disagreement are the folks at Insight, an outperforming monthly newsletter in Hammond, Ind., that tracks small- and midsize companies. They suggest investors should take negative peewee stock talk with a grain of salt, even though they acknowledge you may have to look harder to find bona fide bargains among small stocks and that the lowvolatility, easy-money environment for the pipsqueaks has eroded somewhat.

Their view, as editor Richard Moroney sees it, is that there is still plenty of sizzle left in the small fries.

Nothing says the winning streak cannot reach nine or 10 years, he says, and historically, relative strength has tended to beget further strength. Moreover, he says, many high-quality, fast-growing companies still trade at attractive valuations, and the economic environment remains favorable for such companies.

Yet another plus for the small fry is the ready availability of capital, the major sparkplug for the current mergers and acquisitions boom — a trend that favors smaller companies.

Obviously, Insight has an ax to grind. Given, though, its reported highly impressive track record, the newsletter merits a respectful hearing. Since the letter’s inception in May 1999, it reports that its best-buy list has gained an eyecatching 433.4%. In the same period, the Russell 2000 Index rose 84.4%, while the S&P 500 advanced 10.4%.

So the obvious question: Which are the letter’s current best buys? Here are three of them, each rated a potential of between 15% and 20% gainer over the next 12 months. Accompanied are some brief comments from Mr. Moroney on each company.

One of the letter’s most highly regarded stocks is Advanced Energy Industries ($22.50), a maker of power-controlled systems used in the manufacture of semiconductors, data storage devices, flat panel displays, and solar cells. The solar equipment market, less than 5% of revenues, should be its fastest-growing segment. Pershare profit more than tripled last year on a 26% sales gain. For 2007, consensus estimates project pershare earnings of $1.11, down from $1.41 last year, because of a much higher tax rate. Operating income, though, is expected to show double-digit growth. AEI has virtually no long-term debt and more than $3 a share in cash.

Another of the letter’s favorites, Ceradyne ($59.14), a maker of ceramic products, is benefiting from strong demand for body and vehicle armor. Ceradyne says its specialty ceramic products can withstand extremely high temperatures, combine hardness with light weight, and are highly resistant to corrosion and wear. The government and related agencies accounted for nearly 74% of the company’s 2006 revenues. A favorable environment for defense spending should sustain solid profit growth in coming quarters.

March-quarter earnings should be about $1.32 a share, up 47% from year-earlier levels. For all of 2007, profits are expected to rise 11%, to $5.22 a share. An eventual slowdown in military sales is a concern, but consensus estimates could prove conservative if Ceradyne continues to land new contracts. Total order backlog on December 31 was $344 million, up 24% from the prior year.

Wrapping up our threesome is Chaparral ($62.11), North America’s second-largest supplier of structural steel, which posted record and better than expected February-quarter earnings, a 25% jump to $1.29. Revenues, spurred by rising prices, rose 12%. Sparked by strong demand and favorable pricing, Chaparral’s near-term outlook appears bright. Management has said it expects May-quarter earnings of $1.35 a share, above the consensus of $1.26. For all of fiscal 2007 ending next month, consensus estimates project per-share earnings of $5.13, up 55%. For fiscal 2008, the consensus is $4.92. While recent sales and profit momentum would seem strong enough to warrant a higher P/E ratio than about 11 times estimated year-ahead earnings, there is some worry about a potential slowdown in nonresidential construction.

The letter’s bottom line: Small is still beautiful.

dandordan@aol.com