Takeover Plays among Small Bank Stocks

03/01/2018 5:00 am EST


Doug Hughes

Editor, BankNewsLetter.com

TCF Financial (TCF), Fulton Financial (FULT) and Univest Corporation of Pennsylvania (UVSP) are three stocks that we own as takeout plays, explains small bank stock specialist Doug Hughes, money manager and editor of Bank Newsletter.

TCF Financial just raised their cash dividend 100% wow, they are for sale I think now raising rates helps them a lot, insiders own a bunch of stock and with no bad loans a deal could happen at $26 a share. The stock also offers a nice yield while we wait. We consider this a very safe play.

Fulton Financial  has a great franchise and hot markets, like Maryland and Pennsylavania. Overall, this bank is a great regional powerhouse that could be taken for at least $24 a share any day.

Their locations and deposit franchise is sure to get a lot of interest this year; where many banks need growth markets, they have them. Also, the bank offers a nice yield while we wait for them to get taken over.

Univest has a strong market share in affluent markets of Pennsylvania, It has a very low level of bad loans, a great franchise and they just raised a bunch of money in a secondary last year.

A takeover deal is likely a few years out on this one, but a hot market area and strong earnings growth next year make this a very safe bank investment.


Last but not least, Oppenheimer Holdings (OPY) is a smaller investment bank with great insider ownership. Earnings are growing at a 100% plus clip due to short-term rates going higher.

If the overall stock market stays strong they make even more money, but just with short-term rates going up they should earn $4.00 to $5.00 a share this year. In my view, this means a $40 stock or more this year and a  takeout price could be as high as $50 a share.

The company and management is always buying shares. Insiders own 30% — something we love — and they never sell shares. The bank just bought 450,000 shares of stock at half of tangible book, which is just about the best use of shareholder capital I have ever seen.

The investment bank has never bought so many shares back so fast. As a result, I think a sale is coming soon. If you compare them to other investment banks they are much cheaper on all measures of value, trading under tangible book value. This is our number one holding today.

Also, the company offers a nice 1.5% cash dividend while we sit and wait. This stock has the best risk reward for a liquid stock that I can find in today's market.

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