Updated: June 5, 2011 9:44PM
Dear Mr. Berko: I’m down lots of money in Citigroup, Bank of America and JPMorgan. I logically figured that these banks are involved in every financial business of our economy, and if one of their businesses got into trouble, their other business 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 those 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
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, where they call you by name and banking decisions are made locally, not in some faraway place where billionaire bank CEOs can command the sun to shine.
So peek at Metro Bancorp (METR-$10.88) headquartered in Harrisburg, Pa. Metro has 33 branches in seven 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, and Schwab has a buy on the stock. It does not pay a cash dividend.
Now glimpse at Sandy Spring Bancorp (SASR-$17.49), founded 153 years ago in Olney, Md., 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.
Beneficial Financial (BNCL-$8.29) is one of the 10 small-bank stocks picked by TheStreet.com for above-average growth. This Philadelphia-based bank that opened its first branch before the Civil War has 60 offices and significant potential for earnings growth. There’s no dividend, but BNCL could trade in the low teens within the next two to three years.
Financial Institutions (FISI-$l6.11) makes its home in Warsaw, N.Y. Founded in the depths of the recession (l931), 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. The 40-cent dividend might be raised next year, and the consensus reckons FISI can trade in the low $20s during the next l8 months.
Orrstown Financial (ORRF-$26.26), founded in 1919, has 21 branches and makes its home in Shippensburg, Pa. Its 92-cent dividend yields 3.5 percent and is likely to be raised if 2012 earnings of $2.72 come in 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 Bancorp (PBCT-$13) was founded in 1842, has 300 branches in the Northeast and is homeported in Bridgeport, Ct. PBCT trades at $2 under a $15.23 book value, pays a 62-cent dividend that yields 4.8 percent and expects solid improvement in its earnings this year and next. Standard & Poor’s has a strong buy rating on the stock.
Meanwhile, Shippensburg, Warsaw and Olney have some dandy 4th of July parades and picnics.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at email@example.com.