I finished The 52-Week Low Formula by Luke Wiley last evening while I watched the San Francisco Giants even things up with the Kansas City Royals. As I mentioned Wednesday, as I read this book I was already thinking of different ways to use the ideas expressed in it. The simple approach of buying profitable, well-financed companies at 52-week lows makes an enormous amount of sense to me.
However, the profitability and financial measurements used by the author do not lend themselves very well to financial stocks. My favorite sector of the market has been, and still is, the subgroup of small regional and community banks -- my Trade of the Decade -- and it will remain my favorite area for a long time to come. So I adjusted his formula to find attractive small-bank stocks priced at 52-week lows.
I set my screener to search for small banks whose shares were trading for less than book value and were near 52-week lows. I proceeded to filter for those with low levels of non-performing assets and sufficient amounts of capital. I specifically looked for non-performing assets of less than 3%, and an equity-to-asset ratio of above 10. The resulting list is not a long one, but there are some excellent investment opportunities worth considering whose shares are changing hands around their yearly lows.
Near the top of the list is an old favorite: HomeTrust Bancshares (HTBI), of which I have owned shares for some time now. The North Carolina-based bank has been doing a fantastic job of growing via acquisition, and it has plans to continue expanding in the years ahead. HomeTrust has an equity-to-assets ratio of 16.48, and non-performing assets are just 2.6%. The stock is just 3.6% above the 52-week low, and trades at 80% of book value.
Northeast Bancorp (NBN) is based in Lewiston, Maine, and has 10 branches and six loan-production offices in the region. The bank also has about $759 million in assets and is in solid financial condition. The equity-to-asset ratio is 12.92, and nonperforming assets are just 1.24% of total assets. At the same time, the stock trades for less than 90% of book value and is just 4.7% off the 52-week lows. The CEO, Richard Wayne, appears to be confident in the future for his bank, as he has been buying stock in the past few months.
Astoria Financial (AF) shares have been just drifting for most of 2014, and right now the stock is down about 8% on the year and within 3.8% of new 52-weeks lows. The stock is trading at about 90% of book value, and is in sound financial condition. Astoria has about $15.6 billion in assets within the greater New York area. The equity-to-assets ratio is 11.22, and nonperforming assets are just 2.17% of total assets. Astoria is struggling a bit with low net-interest margins, with low mortgage demand and with the incredibly competitive marketplace that it serves, but the stock is getting cheap for a bank of this size. Should the shares trade too much more below 90% of book value, it will become a "too cheap not to own" stock.
Territorial Bancorp (TBNK) has 29 branches and about $1.6 billion of assets in the state of Hawaii. The stock trades at 90% of book value, and is just 7% off of the 52-week lows right now. The bank is in solid financial shape, with an equity-to-assets ratio of just 0.35% of total assets, and the equity-to-assets ratio is 12.47. Unlike many banks of comparable size, Territorial has been seeing relatively strong loan growth this year. The bank does almost exclusively single-family mortgage lending, and it is benefiting from a strong real estate market in its region. Territorial is at the very top of my "please continue to fall" list -- because, if the stock drops below 85% of book value, I will be an enthusiastic buyer.
Buying shares of banks that fit the profile of a Trade of the Decade at 52-week lows is a sensible approach, in my opinion. Not too many of these have dropped this year, so taking advantage of the few that trade at low levels can help boost long-term performance as social and economic forces continue to shape up the community-bank stocks and create opportunities for large profits in the years ahead.