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Four Financials at Historical Low Price/Book Ratios: HCBK, RBCAA, TMP, HCC

I ran a value screen today on GuruFocus of companies at historically low price to book ratios. This is a good indicator for a variety of reasons, but I think it works the best with financials. For that reason, I narrowed down it down to just financials and chose the four below. Each of these stocks is currently trading at P/B ratios near or below their 10 year P/B lows. To run this screen yourself, follow this link.

Hudson City Bancorp (HCBK): Hudson City is a New Jersey-based thrift that weathered the financial crisis very well. Ironically, they’re not facing challenges partly based on their strength through the crisis. A major part of their business is buying mortgage backed securities, and they’re being crowded out of the market by Fannie Mae, Freddie Mac, and FHA. There’s simply not enough of a spread for them to make a profit when competing against these government entities. Not only that, but the stock dropped by more than 8% on Wednesday on fears that they’ll have to raise more capital.

Hudson City’s 10 year historically low P/B is 0.96. I should say it was 0.96. Today Hudson City trades at 0.9. Unfortunately for them, their earnings will decrease this year as will their book value.

Republic Bancorp (RCBAA): Republic Bancorp also is trading below its 10 year P/B ratio lows. Their P/B is currently 1. Like Hudson City, Republic also handled itself very well through the financial crisis, but is now facing headwinds specific to the company. Regulators are clamping down on refund anticipation loans, which had grown to a significant part of Republic’s business. To read an article I had written about them last month, click Refund Anticipation Loan Crackdown: Be Wary of Republic Bancorp. It should be no surprise, then, that only one guru owns shares: Jim Simons.

Tompkins Financial (TMP): While the two names above have some serious issues specific to the companies, which is why their share prices have been pushed down, Tompkins Financial is in great shape. Their 10 year P/B low is 1.44, and their current P/B is 1.6. Tompkins has grown earnings for 36 straight years. Their 1.44 P/B may seem high when probably 95% of the banks out there trade at a lower level. However, traditionally their P/B was closer to 2.25. They’ve also got a 3.3% dividend yield, and their payout ratio is below 44%. They didn’t suffer at all during the financial crisis and are in as great a shape as ever. If you’re looking for a stable grower that is undervalued and won’t give you any surprises, it would be hard to pick a worse stock than this one.

HCC Insurance Holdings (HCC): HCC Insurance is the only non-bank on the list. They’re an insurer trading at 1.1 times book when their 10 year lows are 0.88. Its historic average is 2.2. HCC is very conservative at pricing policies, and they’ll change their focus on coverage lines in order to take advantage of better pricing. They cover a wide range including life insurance, property-casualty, liability insurance and others. Despite being at a 52 week high, I consider the insurance industry to be out of favor right now based on valuations. Pricing, inflation, and unusual uncertainty have dampened enthusiasm for many stocks in the industry, but HCC’s downside risk appears to be limited, in my opinion. Perhaps for that reason, 11 gurus own shares, with John Rogers owning more than 2% of the company and John Keeley owning 1.36%.

Check out GuruFocus value screens of Companies at historically low price to book ratios and Companies at historically low price to sales ratios.

Disclosure: Long HCC

About the author:

Steven Kiel
Steven Kiel is the president and chief investment officer for Arquitos Capital Management, a Virginia-based investment management firm. He is a graduate of George Mason School of Law and a captain in the Army Reserves. He manages two spoke funds, The Freedom Fund, a value-oriented portfolio, and The Hayek Fund, a portfolio dedicated to free market principles. He can be contacted at steven.kiel@arquitos.com or through the firm's website at www.arquitos.com.

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