Wednesday, January 12, 2011

Is It Time to Buy the Baby Bank Stocks?

Most aren't watching banks trading with market capitalizations under $100 million, but that's where the real action might be over the next 6 to 12 months in the banking sector.

I just got off the phone with money manager Derek Pilecki of Gator Capital Management in Tampa, Florida, who watches the banking sector very closely. He tells me that because of the recent crisis in the mortgage sector, the market has punished all banks, even those that have nothing to do with the crisis.

He tells me that the banks with market caps under $100 million have had dramatic drops in prices, and were hit at the end of 2010 with a second round of selling by investors taking tax losses. He says there are a huge bunch of these small cap banks, that are selling between 25% to 30% of book value, that are not part of the mortgage crisis at all and have no reason to be selling so low. He expects many of these banks will double or triple in price.

Given that Bernanke is pumping money out at a furious pace, we may have a dovetailing of events that could really propel these banks. Good luck digging.


  1. Can't speak of any individual stocks, but I watch the Nasdaq Bank Idx and RKH (Regional Bank ETF), as they are often leaders of the general market. RKH recently tested its 20 day MA as support and is now poised for a breakout of 88.26 resistance.

  2. Jim Grant has been pushing small, local lenders as well and specifically has been on the theme of investing into recently IPOed demutualizations. He says often when they come to market they trade at a significant discount to NAV and they provide a way to buy up a bunch of deposits at discounted prices.