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A holding company that sells insurance and third-party services through its Kanawha subsidiary, KMG America Corp. (KMA) is a nice small-cap company that has a very bright future.

KMA has three divisions: Work, Senior, and Third Party. The first sells insurance to employers and their workers and the second to senior citizens. The Third Party division provides claims handling, eligibility issues, a call center, and other support services. The company's strongest base has been in the southeastern United States, but it is spreading across the country.

The company's results so far have been promising; revenues and profits have been growing steadily. The third quarter of 2006 saw net income double from the previous quarter. Revenues for the first nine months of 2006 climbed 16%, while net income grew by 38.7% over the first nine months of 2005. With a strong focus on senior citizens in an aging population, and with its national growth plan, I think we can expect this growth pattern to continue.

This is a small cap with a great potential; it was recently written up in Bottom Line, which is why the stock is up from its lows this past summer. I think there's still growth to be had. It's a perfect choice for many small-cap funds, and I believe they're going to send this stock up for the next few years.

Type of stock: A new insurance company that is showing excellent growth.

Price target: Now trading above $8, the stock has climbed from its low around $6 this summer. It's getting close to its 52-week high of $10.70, but I wouldn't let that scare you. If you get in now and hold, I think you'll see this one getting above $10 in the next couple years.

KMA 1-yr chart

KMA

Source: KMG America Corp.: An Insurance Small Cap With Great Potential