Money manager Raymond C. Stewart says that bank stocks are in for a boom. Stewart’s firm, Briarcliff Manor, New York-based RASARA Strategies Inc., manages $160 million in assets for institutional investors–money he invests in his specialty, bank stocks and financial services companies. He has covered banking for more than 20 years, starting as an analyst for Salomon Brothers, and later supervising bank-stock portfolios for the Westchester County, New York, investment firm WRM Equity. He launched his own operation, RASARA, in 1997.
Stewart looks for the Federal Reserve Board’s interest rate cuts and the economic recovery packages Washington, D.C., has been pumping into the economy to give banks a boost in the first half of 2002. He says the current environment favors the industry’s smaller regional players, banks with a stock market value of $20 billion or less. Regionals tend to get a larger share of their income from loans than the industry titans, and, therefore, they benefit more when rates come down. Also, regional operations have less exposure to the default of huge foreign or corporate loans–they lend more to small businesses and consumers, which can help minimize losses during a recession.
Stewart adds that the best-run regionals are currently using mergers to boost assets and expand operations. “That is a major theme I focus on in this business,” he says. “It’s a good way to grow earnings and gain position for an upturn in the economy.”
Stewart’s favorite is North Fork Bancorp (NYSE: NFB), a Melville, New York, bank. Recent acquisitions have helped North Fork build a strong foothold in New York City, yet the bank’s credit quality is pristine. “They do a bang-up job because they have some of the best management around,” says Stewart, who feels North Fork could go from $28 to $33 in the next 12 months.
Another pick is one of North Fork’s neighbors, New York Community Bancorp (Nasdaq: NYCB), which operates savings and loans in and around Gotham. New York Community is a big player in the region’s mortgage market and has also used key mergers to build its asset base and earnings ability. Like North Fork, New York Community’s credit quality is sterling. Stewart thinks the stock will move from $28 to $35 a share in 12 months.
Out on the West Coast, Stewart likes Greater Bay Bancorp (Nasdaq: GBBK), which operates banks in the San Francisco region and in Silicon Valley. Greater Bay not only weathered the area’s tech downturn well, it used acquisitions to boost assets by 44%, and total loans by 34%, in the first half of 2001. Stewart says its stock should rise to $35 from $21 within a year.
Stewart travels inland a bit for his last two choices. First there’s National Commerce Financial Corp. (NYSE: NCF), a Memphis operation with $17 billion in assets. “They’ve chosen good acquisitions and they don’t pay too much for what they buy,” Stewart says. He sees the stock moving from $24 to $28 in 12 months.
Then there’s Marshall & Ilsley (NYSE: MI), a Milwaukee-based bank.