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Small-cap stocks can offer investors huge growth opportunities for their portfolios, but can also add new levels of risk. One strategy for reducing that risk is to seek out small caps that won't stay small for much longer - those that are projected to grow over the long term. Keeping this idea in mind, we are focused on small caps that not only have strong growth projections, but that also look undervalued according to their fundamentals. We arrived at a short list of stocks that warrant more research.

EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. The 1-Year Expected EPS Growth Rate is an annual growth estimate, where the growth projections are made by analysts, the company or other credible sources.

The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.

The Price/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share

We first looked for small cap financial stocks. Next, we then screened for businesses with projected high growth, measured by 1-year projected EPS growth above 25%. We then looked for companies with a low price-multiple premium (forward P/E<10)(P/CFO<10).

Do you think these small-cap stocks have a strong outlook? Use our list to help with your own analysis.

1) Cowen Group, Inc. (NASDAQ:COWN)

Sector:Financial
Industry:Investment Brokerage - National
Market Cap:$303.40M
Beta:1.07

Cowen Group, Inc. has a 1-Year Projected Earnings Per Share Growth Rate of 50.00%, a Forward Price/Earnings Ratio of 5.54, and a Price/Cash Flow Ratio of 3.86. The short interest was 3.52% as of 07/01/2012. Cowen Group, Inc. is a publicly owned asset management holding company. Through its subsidiaries, the firm provides alternative investment management, investment banking, research, and sales and trading services for its clients. It manages separate client focused portfolio through its subsidiaries.

2) MCG Capital Corporation (NASDAQ:MCGC)

Sector:Financial
Industry:Asset Management
Market Cap:$351.56M
Beta:2.23

MCG Capital Corporation has a 1-Year Projected Earnings Per Share Growth Rate of 70.00%, a Forward Price/Earnings Ratio of 8.98, and a Price/Cash Flow Ratio of 3.69. The short interest was 3.93% as of 07/01/2012. MCG Capital Corporation is a private equity firm specializing in investments in middle market companies. The firm does not prefer investments in highly cyclical and volatile industry sectors and businesses with significant volatility exposure. It seeks to invest in small to mid sized companies.

3) Popular, Inc. (NASDAQ:BPOP)

Sector:Financial
Industry:Foreign Regional Banks
Market Cap:$1.71B
Beta:1.86

Popular, Inc. has a 1-Year Projected Earnings Per Share Growth Rate of 39.58%, a Forward Price/Earnings Ratio of 6.20, and a Price/Cash Flow Ratio of 3.61. The short interest was 2.69% as of 07/01/2012. Popular, Inc., through its subsidiaries, provides a range of retail and commercial banking products and services primarily to institutional and retail customers in Puerto Rico and the Mainland United States. It offers deposit products; and commercial, construction, consumer, and mortgage loans, as well as lease finance. The company also offers financial advisory, investment, securities brokerage, and insurance and reinsurance services.

4) KBW Inc. (NYSE:KBW)

Sector:Financial
Industry:Asset Management
Market Cap:$571.31M
Beta:1.37

KBW Inc. has a 1-Year Projected Earnings Per Share Growth Rate of 159.46%, a Forward Price/Earnings Ratio of 8.57, and a Price/Cash Flow Ratio of 3.95. The short interest was 13.48% as of 07/01/2012. KBW, Inc., through its subsidiaries, operates as an investment bank specializing in the financial services industry in the United States, Europe, and Asia. It provides various investment banking services that include mergers and acquisitions, and other strategic advisory services, such as advisory services relating to mergers, acquisitions, divestitures, hostile takeover defenses, and special committee assignments; capital raising services comprising acting as an underwriter and placement agent in public and private offerings of equity and debt securities; equity and fixed income securities offerings; and mutual thrift conversions, as well as equity and fixed income sales and trading services. The company also offers research services, which consist of fundamental and objective analysis that identifies investment opportunities and assists investor to make investment decisions.

*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Google Finance.

Source: 4 Small Cap Financial Stocks Projected For Growth But Trading Dirt Cheap