• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Financial Services

4 Names for Those Who Shop the Financials' Bargain Bin

Financial companies that are underperforming but still financially viable can pay off for aggressive yet patient investors.
By TIM MELVIN Dec 13, 2016 | 11:00 AM EST
Stocks quotes in this article: OZM, SVBI, BYBK, HIG, L

Yesterday's column sparked a lively discussion about value creation and destruction in the stock market. I talked with a few like-minded friends last night and the conversation turned toward financial companies that were not increasing the value of their business. I was of the opinion that underperforming financials that are not growing their book value and earnings are likely to become takeover targets as long as they are not financially impaired in some manner. A list of such companies would be more of a shopping list than a sell or avoid list.

I sat down and ran a screen to look for underperforming financials this morning, and I found some interesting stocks on the list. I noted that there were quite a few investment-related firms on the list. The investment landscape has been changing over the past five years with the explosion in ETFs and index investing, and that has taken a toll on some firms.

Och-Ziff Capital Management (OZM) has seen its stock price fall by about 45% this year as the firm has seen redemptions from its portfolio of hedge funds. In addition to trends toward passive investing, the asset management firm has had to pay fines and penalties of $400 million to settle a case involving bribery and corruption in Africa. Analysts believe the firm will see significant withdrawals at the end of the fourth quarter as a result of the scandal, and that has weighed heavily on the stock price. Still, the firm has more than $30 billion under management and many of its funds have been performing well in 2016. The company eliminated the dividend for the current quarter to preserve cash but could reinstate it in 2017 once the news flow surrounding the stock begins to settle down. If the firm comes anywhere close to the profit estimates for 2017, the stock could post significant gains over the next year.

Severn Bancorp (SVBI) in my hometown of Annapolis, Maryland, also makes the list of underperforming financials. It struggled with loan losses in the aftermath of the credit crisis, but in the past year it exited its consent agreements with regulators, paid off its TARP preferred and has been able to add back its deferred tax assets. The bank appears to have turned the quarter, and I am a big fan of management and the markets in which it operates. The stock is trading at about 96% of book value, and although I have a high degree of confidence that management can continue to improve the performance of the bank and get the stock price higher a takeover announcement would not shock me.

There is a similar situation at another favorite up in my old stamping grounds. Bay Bancorp (BYBK) was reorganized in 2011 after the bank failed in the credit crisis and had to take write-downs and charges over the ensuing years that caused a pretty significant drop in book value. The bank has turned the corner and is now growing by acquisition. I am also a big fan of management at this bank and think we will see solid asset and earnings growth in the years ahead. It serves an incredibly attractive market with operations in Baltimore, Anne Arundel, Howard and Harford as well as south along the Baltimore-Washington corridor, so I would not rule out a potential takeover of this bank, either. The shares are trading at 1.06x book value at the current price, so the stock is still cheap.

Hartford Financial Services Group (HIG) has recovered a bit since its disastrous second-quarter report sent the stock tumbling. Third-quarter results were much better and the personal lines of business were a little better. Commercial lines were strong and investment returns were much better in the quarter as returns from its hedge fund investments were much better year over year. Management is confident the situation will continue to improve and expressed that confidence by announcing a new, $1.3 billion equity repurchase plan as well as a 10% increase in the quarterly dividend. Loews (L) owns the majority of the company, so a sale is highly unlikely, but the company appears to be on the right track The stock is trading at book value right now, and I think that patient long-term investors will be well-rewarded for owning the stock.

Financial companies that are underperforming but still financially viable make a pretty good shopping list for aggressive yet patient investors.

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 SVBI and BYBK.

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

More from Financial Services

Bearish Bets: 3 Stocks You Should Think About Shorting This Week

Bob Lang
Aug 14, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

What AIG's Charts Say About the Stock Ahead of Earnings

Bruce Kamich
Aug 8, 2022 2:03 PM EDT

The stock just tested the underside of the declining 50-day moving average.

Bearish Bets: 3 Stocks You Really Should Consider Shorting This Week

Bob Lang
Aug 7, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

I'm Banking on a Play in B. Riley Financial

Bret Jensen
Aug 7, 2022 7:30 AM EDT

Let me show you a covered-call setup in this investment management and financial services company.

Here's Why Apple Has Me Nervous About the Stock Market

Bruce Kamich
Aug 4, 2022 11:36 AM EDT

You may recall what I recently wrote about Costco.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:24 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    To Improve Your Trading and Investing, Spend More ...
  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • 01:44 PM EDT STEPHEN GUILFOYLE

    This Holding Lights Up With Strong Earnings

    Check out the latest from TheStreet's Stocks Under...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login