Bad Time For Banking

Who knew? At the time Raymond Stewart, president and chief investment officer of RASARA Strategies Inc. in Briarcliff Manor, N.Y., selected a portfolio of banking stocks in October 2006, the subprime lending crisis had yet to be revealed (see “Stock Picks You Can Bank On,” January 2007). With all the problems that have emerged over the past year, his portfolio dropped 9.2%, while the S&P 500 posted a gain of 9.2%.

At a time when wobbly loans are spooking those who invest in financial companies, Stewart says New York Community Bancorp Inc. is a true safe haven.

Trading at $18 in early November, he says shares could hit $22 by the spring. With Community Bancorp’s superior credit quality, Stewart says investors are focusing on whether its dividend of 5.5% will be maintained; Stewart believes it will. Shares were down from their mid-August high of $19.87, but Stewart still rates the stock a buy.

On the other end of the spectrum, Stewart’s portfolio was hit most dramatically by shares of Mercantile Bank Corp. Its shares were cut in half, thanks to the weak economy in its home state of Michigan. Job cuts by automakers helped weaken the state’s economy and create one of the nation’s highest foreclosure rates. Believing shares of Mercantile have “pretty much bottomed out,” Stewart says the stock could climb 10% by spring.

Posting modest gains were shares of Carver Bancorp Inc., up 3.2%. The stock does not attract much investor attention because it’s not formally followed by analysts, argues Stewart, who predicts it will hit $20 in less than a year. Indeed, in July Carver moved its listing from the American Stock Exchange to the Nasdaq, in part to gain more visibility with investors.

Raymond Stewart:

Company (Ticker) 10/2/06 Price 11/9/07Price Total Return*
Carver Bancorp (CARV) $16.33 $16.85 3.2%
Mercantile Bank Corp. (MBWM) 36.07 17.26 -52.1
New York Community Bancorp (NYB) 15.23 18.06 18.6
UCBH Holdings (UCBH) 16.97 15.87 -6.5
Total Portfolio -9.2
S&P 500 1,331.32 1,453.70 9.2

*Reflects stock splits and dividends source: yahoo! finance