"Under-the-Radar Stocks" is a daily feature that uncovers little-known companies worthy of investors' consideration. Check in at 5 every morning to find out about stocks that tend to beat their bigger brethren.
Financial stocks have endured a lashing for their perceived greed and negligence.
Some have benefited from optimism the economy is on the mend and the industry is healing itself after first-quarter results showed the first signs of an upswing. Investors have piled into
(WFC - Get Report)
(JPM - Get Report)
(GS - Get Report)
Bank of America
(BAC - Get Report)
. And the
Russell 1000 Financial Services Index
has jumped 75% from its March 6 low.
But not all financials have enjoyed the rally.
(AMSF - Get Report)
are small-cap insurance stocks that are overdue for recognition. Only 87 of 1,110, or 8%, of financial shares covered by the TheStreet.com Ratings have "buy" recommendations. The duo is among them. But investors fear a poor business and construction environment is hurting the companies.
Chicago-based CNA Surety is one of the largest surety providers in the U.S. but has a market value of only $645 million. The company, which writes bonds as insurance for contractual obligations, has held up remarkably well during the recession. TheStreet.com Ratings upgraded CNA Surety to "buy" on March 27.
The company's first-quarter revenue declined a marginal 1% to $113 million, and earnings per share fell 10% to $0.47. It added $34 million to its cash balance. Despite CNA Surety's sound financial position and impressive operating performance, the insurer's stock has fallen 27% this year, underperforming the
Dow Jones Industrial Average
S&P 500 Index
. It's trading at about $14, closer to its 52-week low of $9 than its high of $23.
The shares are trading at a price-to-earnings multiple of 5.95, 84% cheaper than the average peer in the property and casualty insurance industry. The stock is also cheap on the basis of book value and cash flow. As business volume picks up with the economic recovery, the company should enjoy growth in revenue and earnings.