by Tim Melvin | November 27, 2013 6:30 am
I have known Louis Navellier for many years now and consider him a friend. It is, admittedly, an unlikely pairing because you could not find two people who pick stocks or approach the markets in a more different manner.
Louis is the king of growth stocks and has piled up a tremendous track record picking the fastest growing stocks with strong fundamentals and momentum from institutional buying pressure. I have made my way buying safe and cheap stocks with very little institutional interest or presence and pay almost no attention to earnings growth at all. However, we have more in common than you might think as we both tend to let the numbers tell the story and stick to our style through the market cycle.
It may surprise you to know that Louis is on my regular reading list. He may not pick stocks the same way I do, but seeing what he is buying and selling contains valuable information even for an asset-based value guy like myself. In addition, he is one of the best at assessing general market and economic conditions, which is my weak spot.
Louis has developed a pretty cool stock grading tool that ranks stocks based on his metrics, called Portfolio Grader. An “A” stock is one with great growth fundamentals, analyst upgrades and strong buying pressure while an “F” is on the other end of the scale with poor earnings momentum and analyst dislike or disregard while being sold by the big funds.
Every once in a while, I will dump one of my portfolios into the system just to get a laugh or two. Most of my stocks are ranked “D” or “F.” By the time they get to an “A” or “B,” I’m usually selling as they no longer fit my value definition. I once remarked that I make the first money on the stock and Louis makes the rest. Both approaches work — they’re just different.
Yesterday I was fooling around on the computer and dumped a list of my current value picks into his Portfolio grader tool and my eyes almost popped out of my head. I had a long list of stocks that were not only cheap by my standards, but also ranked “A” by Louis’ approach. Almost every one of my small regional and community bank stocks were ranked “A,” and all trade well under their book value as well. The trade of the decade in small bank stocks is attracting attention from both value and growth investors.
Prudential Bancorp (PBIP) is a great example of what’s going on in the sector. The bank just completed the second step of its mutual thrift conversion and is trading at less than 80% of book value right now. The bank has made huge improvements in the quality of the loan portfolio in the past year, and the fundamental improvements have caused Louis’ filters to notice the stock favorably. The bank is located in the lucrative but over-banked Philadelphia market, and it should be attractive to potential buyers at some point in the future.
Mutual First Financial (MFSF) is another bank that receives high marks under the Portfolio Grader system and is also attractive on a valuation basis. The bank operates in the Muncie, Ind. market which has seen a surprising amount of consolidation activity in the past year. MFSF is seeing decent loan and deposit growth, and earnings are up sharply this year. At 90% of book value, the stock is a “strong buy” from a value perspective at the current level.
If you are not investing in these smaller regional and community banks you are going to miss one of the biggest profit opportunities of your lifetime. Not only are they cheap, but the fundamentals are improving so quickly that even the best of the best growth stock investors starting to take notice.
As of this writing, Tim Melvin was long MFSF and PBIP.
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