Top Picks 2018: Southern Michigan Bank (SOMC)
01/16/2018 5:00 am EST
They have almost no bad loans, strong management and a book value of $30.00 a share. Banks like this usually get almost 2 times book in a takeout.
They also pay a solid 2.5% cash dividend, and should earn well over $3.00 a share in 2018, so the PE is also very low. In my opinion, this is about as safe a bank stock as you can find in today's stock market. I see almost no downside risk and 55% upside, which makes it a top holding.
No other group than the small banks still has so many names that are still so cheap. I expect that there will be a wave of small bank mergers in 2018, with many bank stocks having moved up over 50% or more and many not moving at all, this creates miss-pricing so deals will happen fast.
SOMC fits this merger profile with strong earnings, almost no bad loans, and a stock that hasn't moved up like the larger ones in the group. Fifth Third (ITB) would make a great fit for them; I would view that as a win-win for shareholders on both sides of the deal.