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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jisaacs57 who wrote (35621)	10/8/2009 3:42:18 PM
From: Arthur Radley	Read Replies (2) \| Respond to of 78774

Isaac, I will throw my two cents into the question about MCGC. If you think the banking sector has solved all the toxic assets and gotten them off the books......go for a small operation like MCGC. However, note the recent bump was probably due to the analyst up-grade for the stock. Also, note that last Q the projected earnings came in on the low side and for 2010 the current projections are lower than what is 'expected' for all 2009. If you are looking for a play in this sector, I would look at ACAS. I made a nice profit off them by getting in on their 'special' dividend...but as of the late the stock has been in 'still waters'. If this market is getting over heated....the starch in MCGC and their kind will get pummeled (IMO). If you have the money to gamble......MCGC could be worth rolling the dice.

To: jisaacs57 who wrote (35621)	10/8/2009 6:13:02 PM
From: Arthur Radley	Respond to of 78774

Isaac, Not exactly an 'apple to apple' comparison but close enough for me to stay clear of MCGC... Regional Bank Favorites May Slip Credit Suisse warns that a return to profitability may be delayed. Credit Suisse WE DO NOT BELIEVE investors should be overweight regional banks into the quarter -- while there will be some positives such as (1) higher net interest margins, and (2) decelerating nonperforming loan/net charge-off (NPL/NCO) growth, we believe investors may have to extend the duration for when the industry can (1) return to profitability, and (2) when commercial real estate (CRE) and commercial and industrial NPL/NCOs will peak. Specifically, we look for consumer and construction NPL/NCOs to reach inflection points in the second half (most likely in the fourth quarter), while CRE and commercial and industrial NCOs will most likely lag by three to four quarters, unless regulators apply more pressure on loss recognition. This could accelerate the decline in capital ratios, and create a divergence in the regional bank stocks that have consumer versus commercial overweights in their loan portfolios. Due to an improved valuation relative to normalized earnings (7.4 times) and forward tangible book value (1.1 times), we are downgrading Comerica (ticker: CMA) to Neutral from Outperform. While Comerica's underwriting remains strong outside of the construction portfolio, the sheer size of Comerica's commercial and industrial and CRE book (76% of loans, 8.2 times tangible common equity) could cause its earnings-per-share recovery to lag peers. We are raising our target prices for BB&T (BBT), Bank of Hawaii (BOH), Comerica, Fulton Financial (FULT), M&T Bank (MTB), Regions Financial (RF), SunTrust Banks (STI) and Zions Bancorp (ZION). We recommend that clients, (1) increase allocations to Bank of Hawaii and First Horizon National (FHN) and (2) lower allocations to Zion Bancorp and Synovus Financial (SNV). These recommendations are based on relative valuation levels, which we compare against (1) geography, (2) loan mix and (3) loss recognition factors, which impact our third-quarter estimates. In the third quarter, for regional banks within our coverage universe, we expect the average net interest margin to increase by three basis points, average nonperforming assets to increase by 13% quarter over quarter (versus 22% in the second quarter), average NCOs to increase by 18% quarter over quarter (versus 32% in the second quarter), and reserve coverage of loans to climb to 2.7% from 2.4% (while coverage of charge-offs to decline to 1.2 years from 1.3 years). Geography, loan mix, loss recognition are key factors. We believe investors should focus on the regional banks that (1) are attractively valued on normalized earnings (including TARP repayment and future capital right-sizing actions), and (2) will report a faster improvement in EPS. By geography, we prefer the southeast and southwest, which we view as early cycle loan classes and have stronger underlying fundamentals over the longer-term (economic and population growth). Additionally, we prefer the regional banks that have the lowest allocations to commercial real estate and commercial and industrial loans, and instead are overweight consumer and residential mortgage credit as we believe these loan portfolios will experience improving credit quality faster. In terms of loss recognition, we prefer the banks that have built healthy reserves, and are in a position to release reserves over the next two years shielding earnings from NCOs, and also those that have been aggressive in charging-off problem loans. Accordingly, while there is not one bank that meets all the factors on either the long or short side, we believe Bank of Hawaii and First Horizon are well positioned into second-half results, while Synovus Financial and Zions Bancorp have greater risk.