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Bank Bargain Shopping With George Soros

By Michael Carr   |   Tuesday, 09 Sep 2008 03:28 PM

Publicly, billionaire financial speculator George Soros talks about how the world faces the most significant financial crisis since World War II.

Privately, he has been buying up financial stocks.

All large investors in U.S. companies must periodically disclose their positions to the Securities and Exchange Commission. In his most recent such filings, Soros revealed that his Soros Management Company bought a very large stake in the troubled investment banker Lehman Brothers amounting to almost 8 percent of his fund’s assets.

Soros also took smaller positions in a number of regional banks.

In a research report, PL Capital noted that there are about 8,500 banks in the United States. The firm estimates that less than 5 percent of those banks are in trouble.

The report points out, too, that nearly 90 percent of banks were profitable in the first quarter of this year. In fact, more than 4,000 banks made more money in that quarter than they did in the first quarter of 2007, before the credit crisis began to unfold.

Soros seems to have noticed this also, as indicated by his recent stock market shopping spree. He is still heavily weighted in oil and gas stocks, with almost a third of his fund invested in a single company, Brazilian oil company Petroleo Brasileiro (PBR).

But he likes to spot trends early. His actions may be telling us to ignore his warnings of economic doom and start buying financials, too.

To identify stocks like the ones Soros has been buying, I searched for regional banks with good fundamentals that seem to have avoided the worst of the credit crunch. The criteria are:

  • Most recent quarterly earnings and operating cash flow must show increases over the same quarter a year ago.

  • The dividend yield must be at least 2.5 percent, and the P/E ratio must be less than 25. These factors will ensure we find value stocks and help us avoid companies that are headed for regulatory problems.

  • Another criteria to help us avoid buying potential losers is that we will only consider stocks that have shown a better-than-average price gain over the past six months.

  • We want to see that institutions own at least 5 percent of outstanding shares, which means that at least a few analysts have studied the banks to ensure that their balance sheets are sound.

    The final list for this screen includes eight potential Soros bank-stock winners:

    BancorpSouth (BXS) has branches throughout the southern United States. The company has a net profit margin of 16.1 percent and has increased earnings at more than twice the industry average over the past three years. At a recent price of 25.01, the growth of BXS is priced well below its peers.

    Beverly National (BNV) provides banking services in Massachusetts. BNV is a thinly traded stock yielding 4.2 percent at a recent price of 19.05. Bank officers own about a quarter of the shares and have been adding to their stakes throughout 2008. The company has no debt, enhancing its ability to weather any economic weakness.

    Bridge Bancorp (BDGE) operates 14 branches on Long Island and has been growing its dividend by almost 18 percent a year over the past five years. The current yield is 4.3 percent at a recent price of 21.50. Over the past six months, there have been 28 insider purchases in this stock and not a single sale.

    First Financial Bankshares (FFIN) has grown earnings and cash flow faster than the industry average for the past seven years. FFIN was recently trading at 51.50, near its 52-week high. Analysts are forecasting steady earnings growth of 10 percent a year for the next five years for this Texas bank.

    First Niagara Financial (FNFG) operates banks in upstate New York and has a net profit margin nearly twice the industry average. The recent price of 15.81 offered a dividend yield of 3.7 percent.

    NBT Bancorp (NBTB) is expected to see earnings grow by 18 percent this year and has a history of beating analyst expectations. The bank has branches in upstate New York and Pennsylvania and sold recently for 26.54 a share, close to its 52-week high.

    United Bancorp (UBCP) is a small Ohio bank which grew earnings by 23 percent last year. The stock was recently added to the Russell Microcap Index, meaning it now has long-term mutual fund holders. As the company grows, it will be included in larger indexes, increasing the level of institutional holdings. Recent price: 10.75.

    Washington Trust Bancorp (WASH) provides services to high-net worth clients in New England. The stock yields 3.5 percent at the recent price of 24.44, and the company has increased the dividend for 16 consecutive years.

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    Publicly, billionaire financial speculator George Soros talks about how the world faces the most significant financial crisis since World War II.Privately, he has been buying up financial stocks.All large investors in U.S. companies must periodically disclose their...

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