PORTFOLIO UPDATE: A SLIGHT ADD
During the trading day, I tweeted the following:
I've expressed my affinity for regional bank shares many times over the past 12 months. It is not so much that these names have tremendous, instantaneous upside due to a misinterpretation of future growth potential. These are, after all, old economy companies with a very defined pattern of top and bottom line growth. Their businesses are dependent on local economies. It is regional labor growth and the subsequent resulting growth in both commercial and residential real estate that creates prosperity at companies like SBCF.
What is special about regional bank names at present is the fact that the downside is so very well defined. The balance sheets of these companies, in most cases, are now back to pre-crisis levels of prosperity. The net losses are slowly turning into consistent quarterly profitability. SBCF, as an example, announced just yesterday that they are no longer subject to government oversight for the first time since 2008. Their balance sheet is now considered "well capitalized." This allows the company to become more aggressive in their operations as they seek to increase profitability over the coming quarters.
In the meantime, the company has barely been rewarded for its increased health. The stock price is only slightly above its 2012 highs, when the future of the real estate market and regional economies throughout the country was much more murky than it is now. This creates an opportunity that is very low risk in a general market environment that has become exponentially more risk-laden since that start of 2013. By "risk-laden" I don't mean that the markets are prone to collapse by next Wednesday. What I mean is that risk/reward opportunities where you were exchanging say 1 unit of risk for 6 units of reward are no longer available. You now have to settle for much less reward with much greater risk.
SBCF presents the kind of compelling lack of downside risk that makes it a no-brainer type of investment at these levels. It just requires patience as they aren't going to announce a buzz-worthy mobile advertising initiative in the next few months that is going to potentially triple revenues by 2015. At best, a guy from Tallahassee will want to finance his boat through Seacoast Bank while maintaining a $50,000 CD. In other words, it is not going to be a barn burner to the upside, but a slow and steady gainer over the next several years.
As it stands today, the portfolios consist of WMIH, CIDM, HMPR, SBCF and EVOL. A tight bunch.
