"Bank" on Hughes

05/26/2006 12:00 am EST

Focus:

Doug Hughes

Editor, BankNewsLetter.com

Some advisors focus on narrow market niches to become industry leading authorities within a very specific investment sector. Such is the case with Doug Hughes, who has become the newsletter expert on value plays among regional banks.

"NBC Capital Corp. (NBY ASE) operates as the holding company for National Bank of Commerce and Enterprise National Bank, which serve the Mississippi, Alabama, and Tennessee markets with over 27 locations and growing. They have almost $1.5 billion in assets and $865 million in loans. They just announced two small mergers in very good markets, but at very high prices in our opinion.

"The stock just keeps selling off. This is now the time to get in at around $19.00- $20.00 a share. It is only 1.5 times book, and they are worth 2.5 times book. Keefe, Bruyette and Woods is selling 2.4 million shares at $19.50, with an additional 360,000 shares to cover over-allotments. This will be the only time you can get good size in the stock, as it is thinly traded.

"They need the funds for the recent transactions they have announced and for new branch growth. They are opening new branches in fast growing markets, so this will impact earnings for a few years, but in the long run, they look be a dominant player in their main markets. Insiders own a lot of stock over 15% and have been fairly constant buyers of the stock the past few years.

"Management is also getting up there in age and pay themselves very fairly, so they will want to get paid sooner than later. Asset quality is very solid and reserves are strong. They have over 420 employees and 8.20 million shares outstanding. Management knows what they are doing, if they execute well this will be the bottom and the only time in years you can get a large block of stock.

"I recommend accumulating shares of the bank now under $20.00 and would further suggest that you buy all you can under $19. This investment is for long-term investors, as it requires a minimum of a two-five year holding period. Downside should be limited to around 5%-10% in a big market sell off." The Bank pays a big cash dividend almost 4.85%, so we can hold it for free on margin and wait till they sell someday at a 40% premium to today‚Äôs prices."

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