EMC Insurance Group

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I can't help myself; I'm irresistibly drawn to stocks being pummeled in the market. I love it when there is blood in the streets, leaving the potential for big gains by taking advantage of what often is irrational selling.

With small-cap EMC Insurance Group ( EMCI) we have the blood in the street. Since peaking in March at $24.74 per share, EMC has dropped to $19.60 per share today. That is a 20% decline in value.

With no significant changes in operating conditions (the company beat estimates by a penny in the first quarter of 2011), losses in stock market value fall squarely on the shoulders of expected increases in claims due to this spring's stormy weather.

Did the selling go too far? I think so. For the current year, analysts expect a profit of 45 cents per share, followed by a big jump to $1.70 a share in the next year. Investors can buy that more-than-100% earnings growth for just 11.5 times 2012 estimates. Big storms or not, that is pretty cheap in my book and worthy of consideration for any portfolio.

To see these stocks in action, check out the 5 Twister Stocks portfolio on Stockpickr.

-- Written by Jamie Dlugosch in Minneapolis.

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At the time of publication, author had no positions in stocks mentioned.

Jamie Dlugosch is a founder and contributor to MainStreet Investor and MainStreet Accredited Investor. Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to The Rational Investor, The Prudent Speculator, Penny Stock Winners and InvestorPlace Media.

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