Top Picks 2018: Southern Michigan Bank (SOMC)

01/16/2018 5:00 am EST

Focus: FINANCIALS

Doug Hughes

Editor, BankNewsLetter.com

Southern Michigan Bank (SOMC) is a $700 million bank located in Michigan, with 15 locations. The bank has been around since 1871, observes explains Doug Hughes, editor of Bank Newsletter.

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.

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