Bank Stock Ideas From 13F Friends Old and New

 | Feb 14, 2017 | 10:29 AM EST
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I have been going through 13F filings since the late 1980s in search of stock ideas. Back then you had to request the filings and wait for them to come in the mail or subscribe to one of a few very expensive services that would do it for you.

Today, thanks to the internet, the process is a lot easier and can be done almost in real time as the reports are on the SEC website within seconds of being filed. Over the years, I have seen a lot of managers come and go and it's almost as much fun to find talented new managers whose ideas are worth "stealing" as it is to see an "old friend."

One of those filings from an old friend was from Jeffrey Gendell of Tontine Partners. Gendell's story may go down as one of the greatest comebacks in the history of investing. In the late 1990s he was shooting the lights out and at one point had more than $10 billion in assets. He owned a lot of smaller banks, and I made money stealing his small bank ideas.

But when 2008 hit in full force, Gendell was massively long and heavily leveraged with many banks and homebuilders in the portfolio. He underestimated how bad it would be and at one point losses were said to exceed 80% in several of his funds.

Somehow he managed to avoid going all the way under and reorganized the funds. Today, Gendell has about $900 million under management, and he appears to have had an excellent 2016. He is still taking significant positions in some of his portfolio companies and is once again active in the "trade of the decade" in small banks.

Gendell does not appear to have become risk averse after this near death experience. In the fourth quarter, he was buying big stakes in European banks, including Deutsche Bank (DB) and Credit Suisse (CS) , two banks that have garnered a lot of negative publicity in the last year. Both Deutsche and Credit Suisse appear to be cheap based on book value, but Europe is still something of a mess, so it's a high-risk, potentially high-reward bet for the fund.

As mentioned, Gendell continues to be a big fan of the trade of the decade and was buying several of my favorites in the fourth quarter, including HopFed Bancorp (HFBC) , AmeriServ Financial (ASRV) , Essa Bancorp (ESSA) and First United (FUNC) . Gendell has done very well with the smaller banks, and it makes sense to continue taking ideas from him as his comeback continues.

Discovering a new fund to follow is also a pleasant task when going through 13F filings each quarter. For a year or so, I have been running across M3F when reviewing community banks. The firm was started by three veterans of Hovde Capital Advisors, which I consider to be one of the very best bank-stock investors and advisors in the country. M3F appears to have delivered solid returns for their investors since the credit crisis and have made their way onto my must read list of filings.

M3F were buyers of some bigger banks as the year came to a close. It purchased shares of Astoria Financial (AF) as the deal with New York Community Bancorp (NYCB) fell apart. The firm was also a buyer of Action Alerts PLUS holding Wells Fargo (WFC) as that bank was caught up in a sales practices scandal that forced a change to its compensation system. M3F also opened a new position in shares of FBR & Co. (FBRC) , an investment banking and institutional brokerage firm that does a lot of business with the banking Industry.

The firm also sold a lot smaller banks in the quarter as valuations spiked after the election. M3F sold part or all of its holdings in 21 banks in the fourth quarter. For a firm that only has about 32 options in its filing that's a significant amount of selling.

I have seen this type of selling in several bank activist and specialists this quarter and will be tracking the remaining community bank investor filings very carefully. In the past, smart money selling has been an early red flag indicator for the small banks, so it is something we need to be aware of if we own trade of the decade small banks.

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