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Opportunities in Micro Cap Financials

While the overall stock market is not a screaming bargain these days, there are pockets of value sprinkled throughout various sectors. However, investors must exercise caution, especially against the current backdrop of great uncertainty.

In previous articles, I highlighted two areas that appear to offer attractive risk-reward profiles: 1) High quality, multinational mega caps; and 2) Economically sensitive, non-financial stocks selling at large discounts to tangible book value. Another area that may offer compelling risk-reward profiles is micro cap financial stocks.

The following is a list of small banks and insurance companies. These are not recommendations, but rather ideas that require further research. Most of these companies are well-capitalized and sell at meaningful discounts to tangible book value. Also, many are held by well-respected value investors.

Banner (BANR)

Brooklyn Federal Bancorp (BFSB)

Timberland Bancorp (TSBK)

1st Century Bancshares (FCTY)

Hampden Bancorp (HBNK)

Peoples Financial (PFBX)

Omniamerican Bancorp (OABC)

Severn Bancorp (SVBI)

First Pactrust Bancorp (FPTB)

Investors Title (ITIC)

Unico American (UNAM)

21st Century (TCHC)

Presidential Life (PLFE)

Atlantic American (AAME)

These stocks are likely selling at discounts to tangible book value due to continued concerns over lending and soft pricing in the insurance industry. As an added bonus, companies such as these are likely to become acquisition targets when economic conditions improve or if larger firms seek growth by deploying excess capital.

As always, please exercise extra caution and be sure to use limit orders when trading small and micro cap stocks.

Disclosure: Long BFSB and PLFE.

For additional insight, visit IgnoreTheMarket.com.

About the author:

Nathan Kawaguchi
Nathan Kawaguchi is a Research Analyst for IgnoreTheMarket.com. IgnoreTheMarket.com provides independent, value-based stock and mutual fund research, a blog, and acts as a hub for value investing information and research. Nathan Kawaguchi is a former stock broker and has over 10 years of experience analyzing securities.

Visit Nathan Kawaguchi's Website


Rating: 2.9/5 (13 votes)

Comments

rgarga
Rgarga - 3 years ago


Clearly the life insurance companies are cheap, but am worried if interest rates and markets do not rise for some time, will they able to continue growing as they are expected to? What are your thoughts about that?
IgnoreTheMarket
IgnoreTheMarket - 3 years ago
Rgarga--Thanks for your input. I'm not sure about the future of these businesses and have not done in-depth research (my disclosure of long positions account for less than 1% of my portfolio). These appear to be "cigar butt" ideas at first glance and I would likely only buy them at a large discount to net tangible (liquidation) value. However, further research may prove otherwise.

I share your concerns about macro issues. If banks and insurance companies are unable to grow organically, it is my humble opinion that they will seek growth by acquisition--in which case companies selling at discounts to net asset value should prove attractive candidates.
rgarga
Rgarga - 3 years ago


I guess one of my rules is not to invest in anything where I wont put 3% of my assets in... Banks do have earning power even when the spreads shrink and do not need income from market to help with their earnings... However, insurance companies may not especially the small ones which do not and cannot command a premium. Certainly float helps but need to grow earnings. Banks earn by the means of business and now have become the biggest real estate owners in America and will be selling for some time!! Would love to hear your best ideas if you wish to share, and of course would respond in kind. Thank you. Rahul Garg rgarga_2000@yahoo.com

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