More importantly, the residential real estate market is doing extremely well, and is the healthiest its been since 2005 with sales increasing and inventory stabilizing.
I thought I'd post a few thoughts I have on the thrift industry, along with four stocks that I added to my watch list. The four stocks all look cheap, all have certain problems but may turn out to be interesting investment candidates.
A Few Notes on the Thrift Industry
- Ultra low interest rates are a problem because shrinking asset yields are negating any loan growth that comes from new loans and/or refinancing.
- Thrifts have had it tough, but thrifts will benefit if either:
- Fed raises rates (possibly because economy picks up)
- Basically, if the spreads widen between short and long term interest rates, that will be a good thing
- Rate hikes are usually bad for lenders, but it might increase spreads, and indicate a better economy
- Thrifts are currently using M&A to increase profits
- Many of the stocks offer good yields but watch the payout ratios
- Book value is important when analyzing thrifts
Four Thrifts I Like:Here are the four thrifts I like. I don't any positions at the moment, but will be doing some further research. I included the charts of the Price to Tangible Book Value over the past 10 years. Mean reversion is a very important concept, but I like to see charts like this where these ratios are at a 10 year low (or close to it).
FNFG- First Niagara
FNFG data by GuruFocus.com
AF data by GuruFocus.com
CFFN data by GuruFocus.com
NYCB data by GuruFocus.com
As I mentioned at the beginning of the post, residential real estate is a big factor behind these thrifts. Most of the stocks in the industry live and die by housing. The good news is housing is healthy. It is supported by a low supply of new inventory, low interest rates, and an improving economy. Affordability remains high for first time home buyers and buying a home with a 30 year fixed rate under 4% is almost a no-brainer when comparing it to renting. Home builders are becoming more active, but for the past few years new construction housing starts dropped significantly, leading to a multiyear low in inventory. There is also a dearth of available lots for builders to build on, which will put an added constraint on new inventory until new land gets developed and new lots come online. (As a side note, home builder stocks like HOV, DHI, LEN, and PHM have been on a tear in the past 12 months).
Housing also moves in slow, glacial like cycles. I don't like to think much in terms of top down analysis, but in this case, I do think that housing will be a tailwind for much of the banking world, but especially small thrifts and community banks.
Disclosure: John Huber has no position in any of the stocks mentioned.
Also check out:
- Irving Kahn Undervalued Stocks
- Irving Kahn Top Growth Companies
- Irving Kahn High Yield stocks, and
- Stocks that Irving Kahn keeps buying