Dear Mr. Berko: I have $40,000 that I want to gamble in bank stocks because I think Bank of America, Citigroup, Wells Fargo and JPMorgan Chase can double in price during the next two years.
I’d invest $10,000 in each. Do you have any other recommendations and/or do you approve of this idea? — M.R., Jonesboro, Ark.
Dear M.R.: You’ve got to be dumber than paint to buy Citigroup (C, 52-week high of $5.07 as of April 15), Bank of America (BAC, 52-week high of $19.86 as of April 15), JPMorgan (JPM, 52-week high of $48.20 as of April 15) or Wells Fargo (WFC, 52-week high of $34.25 as of April 21).
These huge money center banks aided and abetted the near collapse of the U.S. economy. They fostered the collapse of the mortgage market; unscrupulously fudged your checking account balances to euchre you out of billions of overdraft fees; “red-marked” your credit cards to maximize charges, interest rate and penalties; stiffed you with excessive ATM tolls; and inveigled new ways to increase your checking account costs.
While these issues may rise in value, owning them suggests that you approve of their evil intent, sort of like inviting a pedophile home for dinner.
I think there’s superior long-term opportunity with small banks that are community oriented and based in their service area. The following banks once traded in the $20s, $30s and $40s and now trade under $10 per share.
And as the economy slowly recovers I believe that most smaller banks will provide better appreciation potential than the MCBs. So I’d consider purchasing equal dollar amounts of the following:
KeyBank (KEY, 52-week high of $9.84 as of April 21) traded in the high $30s a few years ago. Home ported in Cleveland, this $4.2 billion revenue bank has 1,000 offices in l6 states and should earn 40 cents in 2011, up from a penny this year. The dividend could be raised in 2011.
Regions Financial (RF, 52-week high of $9.33 as of April 21) in Birmingham, Ala., has 1,800 branches in l6 states, $6.6 billion in revenue and expects earnings of 33 cents in 2011, versus a loss of 65 cents in 2010. I expect the dividend to increase in 2011. And the $11.88 book value is attractive.
Synovus Financial (SNV, 52-week high of $3.92 as of March 17) from Columbus, Ga., owns 41 community banks in five states in the Southeast. SNV, with $1.1 billion in revenue, has been around since 1888 but won’t expect to be profitable in 2011 nor will the dividend be raised. However, it still represents a dandy speculation.
Huntington Bancshares (HBAN, 52-week high of $7.40 as of April 26) of Columbus, Ohio, was founded 144 years ago and has more than 600 branches in eight states. HBAN may earn l4 cents in 2010 on $2.6 billion; in 2011, revenues should earn 43 cents. There’s even a remote possibility of a dividend increase from a current penny to a quarter.
Whitney Holding (WTNY, 52-week high of $15.29 as of April 23) out of New Orleans has been banking money since l883. With expected revenues of $545 million from l70 branches, WTNY won’t be in the black in 2011, but the $16 book value is enticing.
First Commonwealth Financial (FCF, 52-week high of $7.64 as of April 15) of Indiana, Pa., with an $8.10 book value, has 125 branches in l5 counties. Earnings should improve to 40 cents from a loss last year on revenues of $257 million. Meanwhile, there’s a remote possibility of a dividend increase in 2011.
Susquehanna Bancshares (SUSQ, 52-week high of $12.03 as of April 22) has its main office in Lititz, Pa., 221 branches in the state and 2011 earnings should grow to 45 cents from 2010’s 12 cents on $588 million in revenue. There’s a good possibility of a dividend increase to 15 cents, and the $15.29 book value is interesting.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at email@example.com.