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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 Wells Fargo ( WFC), JPMorgan ( JPM), Goldman Sachs ( GS) and Bank of America ( BAC). And the Russell 1000 Financial Services Index has jumped 75% from its March 6 low.

TheStreet.com Ratings

But not all financials have enjoyed the rally. CNA Surety ( SUR) and Amerisafe ( AMSF) 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 and 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.

Amerisafe, based in Deridder, Louisiana, has comparable appeal. The company provides workers' compensation insurance to small and mid-sized employers in hazardous industries such as construction, trucking, logging and agriculture. Amerisafe's revenue and earnings per share have been resistant to the economic rout, but its share price has declined 25% this year, trailing the S&P 500 Index and the Dow.

The company's first-quarter revenue declined 6% to $78 million, and earnings per share dropped 8% to 54 cents, compared with tens of billions in losses at its large-cap competitors. Amerisafe retained a debt-to-equity ratio of 0.13, indicating a modest debt load, and added $18 million to its cash position since the first quarter of 2008 for safety's sake. The stock was battered with the rest of the financial industry in early 2009, but unlike certain larger rivals, it's still awaiting a rally.

With a price-to-earnings ratio of 7.62, Amerisafe is 80% cheaper than its average peer in the property and casualty insurance industry. The stock is also cheap on the basis of sales, cash flow and book value. At $15.50, Amerisafe is $6.50 away from its 52-week high.

As stimulus projects ramp up, Amerisafe stands to benefit from increased payrolls and demand for workers' compensation insurance.

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

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