When it comes to bank and financial stocks right now, smaller is better. The larger banks and brokers are seeing mixed results and having a hard time generating any real revenue growth. They have been engineering profits with buybacks and releases from the loan loss reserves. Meanwhile, Portfolio Grader shows us that smaller bank stocks are seeing much better results and demonstrating the type of fundamental improvements that attracts huge buying pressure from the large institutions.
Smaller banks like Pinnacle Financial Partners (PNFP) are showing strong fundamentals and attracting the market’s attention. The bank has 29 offices in eight Tenn. counties and 3 offices in Knoxville. PNFP is a fraction of the size of the “too big to fail” banks, but business is strong. The company showed a 27% increase in earnings this quarter and initiated a dividend payout as its balance sheet improves with the real estate and economic recovery. With conditions improving, analysts have been raising their estimates for this and next year for the bank. Back in July, the stock was upgraded to an “A” and remains a “strong buy.”
One of the very best financial stocks to own right now is the mutual fund and investment manager Gamco Investors (GBL). Lead by well-known investor Mario Gabelli, the firm has been on fire this year. In the third quarter, the firm recorded a 79% increase in earnings compared to 2012, and assets under management reached a record $43.5 billion. The company also announced a special dividend of 50 cents per share over and above the regular quarterly payout, as well as authorizing a 500,000 share buyback program. The company has posted two consecutive strong positive earning surprises and analysts are raising their estimates for the next quarter and full year 2013. The stock was upgraded to a “strong buy” this week, and the combination of strong fundamental improvements and buying pressure make the stock an “A” in Portfolio Grader.
One of the more interesting financial stocks right now is Portfolio Recovery Associates (PRAA). As the economy improves, people are once again worrying about their credit ratings and trying to repair the damage done over the past five years or so. This company buys up credit and loan receivables for pennies on the dollar and then attempts to collect from debtors. Analysts have been scrambling to raise their estimates for next year with PRAA convincing more people than expected to pay off their old debts. This stock has shown solid growth in revenues and earnings, and has held an “A” rating for the past year. It is still a “strong buy” at the current price.
The large financials are not very attractive at this time because they simply are not growing. Some of the more specialized and smaller financial companies are seeing excellent growth and strong fundamentals, and that is when investors should focus as the market becomes more selective.
Louis Navellier is the editor of Blue Chip Growth.