Equities almost certainly will continue to outperform cash and bonds over the long haul, as they have for more than 200 years. Plus, some companies, such as banks, will benefit from higher interest rates, explains Mark Skousen, editor of High-Income Alert.
The banks make money by borrowing short and lending long. Right now, banks are paying exceptionally low rates on deposits while reaping bigger rewards on their loans due to higher long-term rates.
With that in mind, let’s take a closer look at First Horizon International (FHN). Based in Memphis, First Horizon is a holding company for First Tennessee Bank, offering savings, checking, credit cards, mortgages, investment banking, insurance, consumer and business loans, mutual funds and both discount and full-service brokerage services.
Sales and earnings here have been exceptional. In the most recent quarter, net income soared 295% on a 94% increase in revenue. The bank enjoys a 44% operating margin and its management is earning a healthy 11% return on equity.
Earnings have met or exceeded estimates in each of the last four quarters. Yet, shares of First Horizon have declined from a 52-week high of nearly $21 to less than $16 today. That has brought the stock down to 1.2 times book value and just 10 times my earnings estimate for the next 12 months. This has created a super bargain. And the insiders know it.
In mid-October, First Horizon International Director Scott Niswonger purchased 50,000 shares between $15.73 and $15.80 for a total investment of $788,000. He knows earnings are likely to hit $1.60 a share in 2019. And the dividend yield — already attractive at 3.01% — is likely to rise, too.
This is a fast-growing and undervalued bank that also is an attractive takeover candidate. So, pick up First Horizon National at market today. And place a sell stop at $13 for protection.
