Banking on Bank Stocks
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The mortgage mayhem of the past is still being felt at many banks. I want to take a look at a diverse group of banks looking to find ones that are moving forward and worth investing in.
Lets start with Bank of America (NYSE: BAC). Almost everyday this is one of the most actively traded stocks on the NYSE. Some day it may be worth it for one to purchase this bank stock, but not today. It is still getting out from under its Countrywide Financial mess. When I saw a CBS news segment with the mayor of Baltimore talking about how some U.S. cities were ripped off by Libor manipulation and BAC was one of the banks, I thought another scandal will not be good for stock prices.
Back in March I recommended Huntington Bancshares Inc.(NASDAQ: HBAN) in a blog posting. It is a strong regional bank that is on the right track. Last year it had a ROA of 1% and a ROE of 10.94%. For the first quarter of this year these metrics got even better. It has a dividend yield of 2.5%. Huntington plans to have 70 in store branches opened by the end of 2012 in Giant Eagle Supermarkets and 20 in Meijer stores. These are 12% of the cost of a traditional branch with a planned break even point of less than two years. These branches have far more foot traffic than the traditional branch and 25 potential products and services to drive revenue, Huntington hopes to grow customer share and revenue.
Cardinal Financial Corporation (NASDAQ: CFNL) is a financial holding company. It operates in three business segments, wealth management, commercial banking and mortgage banking. They are trying to streamline their wealth management unit cutting losses. Where they are growing is in their mortgage banking segment. With the recent low interest rate environment they are experiencing a refinancing boom. They have increased their loan origination offices and staff expecting continued growth in this segment.
Citizens Republic Bankcorp (NASDAQ: CRBC) is a regional bank that has gained over 50% in stock price this year. In 2006 they acquired a heavy real estate concentrated bank (need I say more). They have worked hard to right the ship and are pursuing business owner lending, corporate and healthcare asset-based lending and indirect marine and RV lending. They have strung together four straight profitable quarters after several years of losses.
So lets cut to the chase. I want to see banks that have already moved past the mortgage crisis, not ones that are beginning to like Citizens Republic. I want a bank that is going to be free from what could be costly litigation unlike BAC. What I found was that Huntington and Cardinal Financial had strong revenue growth and higher than average return on equity and in banking this usually points to higher future growth and stock appreciation.
mwm102 has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America and Huntington Bancshares. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.