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  1. Home
  2. / Investing
  3. / Financial Services

Rooting for a September Swoon (at Least in These 2 Stocks)

I'd like to make some buys, but markets aren't cooperating.
By TIM MELVIN Sep 02, 2015 | 03:00 PM EDT
Stocks quotes in this article: ISBC, CBF

I have to confess, the only think ticking me off worse than the epic collapse of the Baltimore Orioles is the market's refusal to just plunge straight down and get it over with.

While watching the Birds drop another game last night, I got an email from one of the best traders I have ever known predicting a strong up open this morning. This is not some guy with charts but a long-time trader armed with higher level math, tons of computing power and a strong track record. At the time, I was in the process of considering what stocks might fall down into my buy range and the temptation was to turn off the TV and computer as both seem to be losing efforts.

Sure enough, we had a big lift this morning and, so far, nothing has traded down to where I wanted it to today. That could change by the close, but as I write this the crisis has ended, China is fine, the Saudis are going to stop pumping oil and the economy is on a tear. That's what you might think by the move and the TV talk this morning but that's not really the case.

All the risks that drove the action on Monday and Tuesday are still in place and the market is still pretty pricey. I am not as talented as my trading friend -- and he deals in minutes and hours not days and weeks -- but I do have a list of stocks I want to see drop a bit further so I can spend some of this cash I have on hand.

At the very top of the list is Investors Bancorp (ISBC). Since completing its second-step conversion offering and acquiring Roma Financial, the Short Hills N.J.-based bank has done everything right.

In March, ISBC completed a 5% share buyback program and immediately announced a second 10% repurchase plan. Since 2008, the bank has completed eight acquisitions and CEO Kevin Cummings recently told Rhonda Schaffler of TheStreet that he is committed to achieving further growth by buying smaller competitors struggling with regulatory and compliance costs. ISBC is growing deposits and loans with an emphasis on commercial lending.

I am not the only one who likes Investors Bancorp. The shareholder list reads like a bank stock and value investors' Hall of Fame. Activist Clifton Robbins of Blue Harbour Fund is the largest owner and he recently was buying more shares. Well-known bank investors such as FJ Capital, EJF Capital, Clover Partners, PL Capital, Michael Price, Joseph Stilwell and Lawrence Seidman all own shares of the bank.

With ISBC shares trading at 1.1x book value, I don't need much more of a decline to add my name to the shareholder list. I was hoping the market would be a tad more accommodating this morning.

I also noticed that the de novo order governing the actions of Capital Bank Financial (CBF) was lifted on Monday. This remains one of my favorite banks of all time. These guys raised about $900 million to create a bank just as the world fell off the cliff in 2009. They made a couple of bank acquisitions and bought some others with FDIC assistance.

At the time, no one was buying the little banks and the arbitrage spreads on announced targets were huge. By the time the deals closed I already had huge gains just from the merger arb spread and CBF has continued to do well for me. I would, in fact, like to own a lot more.

The lifting of the de novo order means that Capital Bank is no longer required to maintain certain capital, which placed restrictions on its ability to pay dividends and limited its ability to make other business decisions. This takes some handcuffs off management and as CFO Chris Marshall said in the press release announcing the lifting of the order, "Deploying excess capital will remain a priority for us."

For those without the secret decoder ring, "deploy capital" means buy more banks in its region. I own a ton of bank stocks in Southeast region where Capital Bank operates so that's good news for me. But I am really hoping the market resumes its southern descent and I can add to my stake directly. This is a good bank run by smart people and I think the stock will be a huge long term winner.

I will keep building my lists of stocks to buy at slightly better prices but I really would consider it a favor if all you good people would stop buying the dip, go back to panicking and give me an opportunity to put my cash to work.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Melvin was long CBF.

TAGS: Investing | U.S. Equity | Financial Services | Stocks

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