M&T: Judicious Buy

11/27/2013 8:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Money is going into stocks because ordinary people can't make money anywhere else, and Wall Street traders are gambling with other people's money and think they can get out in time when the party's over, cautions Jack Adamo, editor of Insiders Plus.

I'm not saying disaster is just around the corner, especially with the creed of Fed Omnipotence gaining converts like a tent revival.

History shows that if feelings like this become too pervasive, ordinary people will eventually wish they'd worried about the return of their money, rather than the return on it. And the fast-money players will once again remember how crowded the exit doors can get at closing time.

Fortunately, we can still find a decent bargain or two among smaller capitalized stocks. Hence, we're judiciously adding a stock to our portfolio. My reluctance is based on the overheated state of the stock market, not the quality of the company.

However, I do suspect we will be able to buy it cheaper sometime within the next year, so we will start with a small position. If I'm wrong about a market pullback, we, at least, will have a good price, if not a steal.

We've owned the common stock of M&T Bank (MTB) for almost two years. It has returned 43% so far. Super bank analyst Meredith Whitney, and Tom Keene, the brilliant Bloomberg economist, both called M&T the best-managed large American bank. It consistently delivers superior returns while taking less risk.

Now, we'll add another member of M&T's family, M&T Bank Corp. Fixed Rate Cumulative Perpetual Preferred Stock, Series C (MTB-PC).

The most important thing you have to know about this stock is that the name and symbol may be confusing, as there are no universal symbols for preferred stocks. Different brokers designate them differently.

There are a few other classes of preferred issued by M&T. Some are similar in value, but others have different tax treatment, so make sure you get the right one, the Series C.

The second thing to note is these shares are very thinly traded. We've given this warning before, but in this case, it goes double. Buy the stock only with a limit order, never a market order.

The stock recently traded at $925, giving it a current yield of 6.9%. We recommend these shares up to $975. At the top of our buy range, it would yield 6.54%. The shares are redeemable in November of 2018. If that occurs, your compound annualized return will be 7.1% per year at the current price.

We can't predict that for sure, but I suspect the shares won't be redeemed. Interest rates will probably be higher by then, and the company will leave these outstanding, to provide relatively low-cost equity to bolster its best-in-class balance sheet.

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