When it comes to bank stocks, smaller is better
Dear Mr. Berko:
I’m down lots of money in Citigroup, Bank of America and JPMorgan. I figured that these banks are involved in every financial aspect of our economy, and if one of their businesses got into trouble, their other businesses would take up the slack. I guess this common sense didn’t work. I still own them, and I’m down $9,300, not to mention the dividend losses. Now I have $11,000 to invest. Do you think it would be all right to invest more money in these banks to reduce my costs? If not, please tell me the names of some other banks that you like. This will be for my IRA, and I will retire in nine years, so this is a long-term investment.
D.P., Kankakee, Ill.
Dear D.P.:
Your logic is sound and good common sense. But thank goodness that the market is not susceptible to the disciplines of sound logic and good common sense. If it were, then the stock market would be a huge yawn, most investors would be millionaires and most stock brokerages would be out of business. We wouldn’t want that … would we?
But my gut says stay away from the big banks that have their tentacles in every nook, corner and cranny of our lives. Owning big banks like Citigroup, etc., is like having an elephant in your bed. Its strength is protective and its size is comforting, but may heaven help you if the beast catches cold, sneezes and rolls over.
I prefer the smaller, homegrown banks.
So peek at Metro Bancorp Inc. (METR-$10.74), based in Harrisburg, Pa. Metro has 33 branches in six Pennsylvania counties and expects good improvement in revenues and earnings. Some think it will move to the high teens by this time next year. It trades at $3 below its book value, but does not pay a cash dividend.
Now glimpse at Sandy Spring Bancorp Inc. (SASR-$17.58), which was founded 153 years ago in Olney, Md., and has 43 branches in Maryland and Virginia and a good balance sheet. SASR has strong earnings potential, and the 32-cent dividend might be raised to 50 cents next year.
Financial Institutions Inc. (FISI-$15.52) makes its home in Warsaw, N.Y. Founded in the depths of the Great Depression (1931), FISI has 52 offices in central New York state. Schwab and others have a buy rating and expect 2011 earnings to come in at $1.61 per share. The company recently raised its dividend to 48 cents from 40 cents, and the consensus reckons FISI can trade in the low $20s during the next 18 months.
Orrstown Financial Services Inc. (ORRF-$25.55), founded in 1919, has 21 branches and makes its home in Shippensburg, Pa. Its 92-cent dividend yields 3.6 percent and is likely to be raised if 2012 earnings come in at $2.72 per share as expected. It sports a good balance sheet and income statement with a two-year target price in the mid-$40s.
Finally, People’s United Financial Inc. (PBCT-$12.96) was founded in 1842, has 300 branches in the Northeast and is home ported in Bridgeport, Conn. PBCT trades at $2 under its $15.23 book value, pays a 63-cent dividend that yields 4.9 percent and expects solid improvement in its earnings this year and next.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com
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