A Hospitable Banking Play

 | Dec 04, 2012 | 12:00 PM EST  | Comments
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With warring pundits talking about the looming fiscal cliff -- on most cable news channels 24/7 -- it is difficult to maintain an optimistic bent. However, today, I would to focus on the continuing recovery in the domestic housing market -- especially here in Florida, where I reside.

I have been a skeptic on real estate here since I moved down to Miami from New York City in 2003. Commercial building activity kicked up again in 2004 and 2005 and there seemed to be a dozen cranes on every skyline. I have also seen the various starts and stops in construction activity since the market bottomed in 2008-09. For the first time in a decade, the activity seems sustainable. Rents are going up significantly, financing seems more available and confidence has returned. In addition, the demand from Latin America is substantial and I have seen new developments sell out in weeks -- again with most of the units bought sight unseen from buyers in South America.

Unfortunately, I think I have missed the obvious play on the recovery because I did not buy the homebuilders before their huge run over the last year and a half. However, I think the small banks whose bread-and-butter business stems from primarily residential mortgages and small business loans and mortgages still have plenty of upside as the housing market and the overall economy continue to recover. Additionally, because they have no trading operations, they are not being hindered to near the extent of its bigger brethren by some of the provisions of Dodd-Franks.

One bank I particularly like is BankUnited (BKU). It failed in 2009, was reorganized with help of legendary turnaround manager Wilbur Ross and re-emerged as a public company again in early 2011.

BankUnited provides a range of banking products and financial services to commercial and middle-market businesses, as well as individual customers primarily in Florida. It has 95 branches in 15 counties.

Four reasons to pick up BankUnited at $23 a share:

  1. The stock yields 3.6% after just raising its dividend payout by 24%. It has a clean balance sheet since emerging from bankruptcy and consistently ranks near the top of the rankings for credit assessment compared to its similarly sized peers.
  2. The company has beat earnings estimates for six of the seven quarters since coming public again. Consensus earnings estimates for fiscal 2012 and fiscal 2013 have risen over the past two months. BKU is selling at 12.5 trailing earnings and just 25% above book value.
  3. Wilbur Ross retains a significant stake in the bank. BankUnited is also in an expansion mode. It plans to open 10 new branches in Florida in 2013, just bought a branch in Hialeah and has plans to open several branches in Manhattan, Fla., as well.
  4. The bank is growing market share in Florida and should benefit as the state grows faster than the nation as a whole. It is also ideally located to benefit from the fact that south Florida continuing to evolve as a business hub for fast-growing South America.

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