"Split" Expert Banks on Middlefield

11/05/2019 5:00 am EST

Focus: FINANCIALS

Neil Macneale III

Editor, 2 for 1 Stock Split

We’ve experienced great difficulties in keeping the 2 for 1 portfolio refreshed with new names, given the miniscule number of companies announcing stock splits, notes Neil Macneale, editor of 2 for 1 Stock Split Newsletter.

Mark Hulbert, the highly respected columnist for MarketWatch and the Wall Street Journal, has recently written an article that zeros in on what he believes may be an important signal offered up by the continuing dearth of stock split announcements.

On 10/12/19 Hulbert wrote in his MarketWatch column, “Here’s why the shrinking number of stock splits is potentially bearish: Companies split their shares when they are confident that their share prices will continue rising. That’s because they have a loosely-defined “sweet spot” in which they want their shares to trade. When a company splits its shares, it therefore means that it believes its shares would otherwise trade more or less permanently above that sweet spot."

Hulbert continued, "In contrast, companies won’t split their shares if they think that their higher-priced shares will soon drop back into that sweet spot on their own. Like in a bear market. …. No doubt many factors play a role in the shrinking number of stock splits. But one of those factors certainly appears to be a lack of corporate management confidence in the future of their share prices.”

Meanwhile, Middlefield Banc Corp. (MBCN) is a small bank holding company in central Ohio. Except for its thin trading volume, this stock has all the good things I look for: PE (11.95), price-to-book (1.2), dividend yield (2.42%) and on it goes.

Its Beta, a measure of volatility, is running around 0.35, far below the market. But the standout factor, indicating a very conservative outlook, is an exceptionally strong balance sheet with lots of assets in cash.

Banks are supposed to use their cash to lend out to businesses, car and home buyers, etc. Perhaps MBCN has determined it’s not the ideal time to be doing that.

When the bank announced its up-coming 2 for 1 split, at first, I dismissed it as too small to consider for the 2 for 1 portfolio. Nevertheless, I’ve changed my mind — with appropriate precautions when ordering such a thinly traded stock.

I’ll be buying the stock using limit orders and patience. For our model portfolio, I’ll buy 400+ shares of MBCN over the course of the week using limit orders and patience, probably 100 shares at a time.

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