Commercial Bancshares

01/21/2014 5:00 am EST

Focus: FINANCIALS

Our favorite conservative investment for the coming year is a bank headquartered in Upper Sandusky, Ohio; it has been around since 1920 and has a great franchise, writes Doug Hughes, editor of The Bank Newsletter.

Commercial Bancshares (CMOH) operates as the holding company for The Commercial Savings Bank, with just over $300,000 in assets and $259,000 million in loans. This small, but very strong bank had 5% loan growth last year and net charge-offs of just 0.23%.

The management seems to be very focused on cutting costs and growing earnings, which should be, at least, $3.00 a share in 2014. If you wipeout the top management salaries, that is another $1.00 per share in earnings, so $4.00 in earning power per share is possible on a $44.00 a share takeover price.

Book value is growing by 12% a year, and since they currently only pay a 2.6% cash dividend, look for that dividend to double this year, or for them to announce a large stock buyback.

With their book value at over $26.00 a share and management always buying stock themselves, they will want to do the right thing for shareholders one day soon. Management also owns over 12% of the shares outstanding. Since they have decent growth, a big player like Fifth Third Bancorp (FITB) will buy them one day.

They have only 1.18 million shares outstanding, so buy it slowly, and use limits as always, but this one seems to trade enough each week to get a nice position.

This bank stock is about as safe as it comes, with almost no downside risk, the lowest P/E we have seen in a while, very strong asset quality, solid loan growth, and operations in a good market area of Ohio.

It seems like Ohio gets many deals; better yet, a strong deal price of $45.00 a share, or more, is possible for this powerhouse. There are not many stocks left with over 100% upside and 5% downside risk. Buy all day long and sleep well with this one, it will make you rich one day.

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