TWST: You had another screen ' price to cash earnings ' for the thrifts.
Anything you would mention?
Mr. Schutz: I would say Golden State definitely qualifies for that.
Another name that I have not built a big position in but I think is very
interesting is Sovereign Bancorp (SVRN). With Sovereign you have the
potential of being in trouble if the economy gets really bad because
they don't have a lot of capital. They've bought just about all of
Fleet's divestiture in New England from the merger of BankBoston, which
is a huge bite. However, if they make it work and the economy does not
go into the tank, it's going to be an absolute home run. Sovereign's
reported earnings this year are going to be about $1.18, I believe their
cash earnings are going to be in the mid-$1.30s, if not higher, and the
stock is $6.50. So you're buying something for roughly 5 times cash
earnings. Again, is it going to work? If the economy goes straight into
the toilet because Greenspan goes way too far, this is a really risky
story. But if we have a nice, soft landing and the economy keeps
chugging ahead, the stock is an easy double, if not more. They've
completed one-third of the Fleet acquisition and once it is fully
completed, this company is going to throw off a tremendous amount of
cash. It will build capital very quickly, again, if the loans don't
start going bad. |
