Value is Back Again
07/07/2006 12:00 am EST
With a time-tested strategy—and one of the industry's best long-term performance records—Kelley Wright applies a strict set of criteria to compile its list of "select blue chips." From these, he applies a dividend-based valuation system to find the market's best current values.
“Stocks are getting a bounce, which isn’t unusual considering the beating they have been taking as of late; no market moves in a straight line for too long. The VIX (a snapshot of the fear level in the markets based on the level of put buying) has resurrected from the grave. It has moved from 10 to about 23 and seems poised to move into the 30s, which would represent uber volatility.”
“Put another way, Fed Chairman Bernanke has successfully injected the risk premium back into the markets. This is to further say that the free lunch is over and the asset allocation models of efficiently diversified portfolios with their accompanying pie charts will be exposed for what they are; flashy marketing and nothing more.
“Now for the good news; value is created as prices decline and dividend yields rise. The number of select blue chips in declining trends is still the largest sector of our universe, but a significant number are accelerating toward their historic areas of undervalue.
Currently, Kelley is rating as attractive…
“MidAmerica Bank (MAFB NASDAQ) was founded in 1922 to provide service to the resident of various immigrant communities throughout Chicago and has expanded into a number of other businesses. Its recent expansion has been the result of its acquisitions activities. The company’s overall network of locations is comprised of 75 branches in Illinois and Wisconsin. Though MAFB’s loan activities have always included residential mortgages, acquisitions have added loans, resulting in one-to-four family residential properties representing 59% of all loans made by the bank.
“MidAmerica offers insurance services, including home, boat, automobile, life, and health insurance. The company’s real estate development arm has successfully completed construction of 18 subdivisions.
“At a recent price of $43, MidAmerica Bank is undervalued, yielding 2.3%, compared to its historical high yield of 2.0%. From current levels the company has a 133% upside potential to an overvalue price of $100, low yield of 1.0%. At these levels MAFB offers exceptional historic value backed by strong earnings and an excellent record of dividend growth. As a smaller financial company, MidAmerica has undertaken an impressive number of acquisitions. With consolidation in the financial industry still a major factor, MAFB may itself also be a target for eventually acquisition by one of the many larger financial holding corporations. Shares will remain at undervalue up to a price of approximately $55.50/share.
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