While some banks’ profits have rebounded in the four years since 2008’s financial sector meltdown, much of the industry is still shaky today, especially firms with exposure to European credit. But that doesn’t mean you have to write off the whole industry. The most recent Investment Digest contained some offbeat options in and related to the financial sector, but with unique niches and advantages.
Many consumers are fed up with the high and diverse fees charged to have a checking account at a traditional mega-bank. One option for those taking their banking business elsewhere is the Bank of Internet (tongue-in-cheek slogan: America’s Oldest and Most Trusted Internet Bank), owned by BofI Holdings, Inc. (BOFI). BOFI was recommended in the latest Investment Digest by Richard J. Moroney, editor of Upside, who wrote:
“BofI Holding, a fast-growing bank operating mostly via the Internet, serves more than 38,000 retail deposit and loan customers across 50 states. The bank offers home financing and loans for small and midsized businesses in select markets. An expanding online presence reduces operating costs, helping BofI offer attractive interest rates and low fees on its products.
“Rapid asset growth reflects strong loan production. Over the last five years, assets have increased at a 20% annualized rate. In fiscal 2012 ended June, per-share earnings soared 25% to $2.33, aided by a 28% increase in the June quarter. On June 30, total assets were $2.3 billion, up 23%. Asset quality was strong, with nonperforming assets only 0.77% of total assets. For fiscal 2013 ending June, the two-analyst consensus calls for per-share earnings of $2.67, implying 15% growth. Yet shares trade at only 10 times trailing earnings, versus an average P/E of 13 for the industry group. The Quadrix Overall score is 97, reflecting above-average scores in all six categories. BofI is being initiated as a Buy.” — Richard J. Moroney, CFA, Upside, 9/3/12
A little over a week later, BOFI had risen from $24 to $26, and Moroney updated the stock to a ‘Best Buy’ in a hotline on September 11. It still looks good today.
Our second offbeat financial is a very small-cap company ($54 million market cap) serving a niche market of auto buyers. It was recommended by the small-cap experts at The Oberweis Report in the latest Investment Digest:
“Consumer Portfolio Services, Inc. (CPSS) is a specialty finance company focused on purchasing and servicing retail automobile contracts originated primarily by franchised automobile dealers and, to a lesser extent, by select independent dealers in the U.S. in the sale of new and used automobiles, light trucks and passenger vans. Through their automobile contract purchases, they provide indirect financing to the customers of dealers who have limited credit histories, low incomes or past credit problems, referred to as sub- prime customers. The company serves as an alternate source of financing for dealers, facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources such as commercial banks, credit unions and the captive finance companies affiliated with major automobile manufacturers. The company focuses its marketing on dealers, rather than directly on consumers, through their marketing representatives that call on and establish relationships with dealers.
“As of December 31, 2011, approximately 89% of the automobile contracts purchased under the company’s programs consisted of financing for used cars and 11% consisted of financing for new cars. The company’s business is diversified across a large number of dealers, as no single dealer accounted for more than 5% of the total number of automobile contracts purchased. Dealers typically send credit applications to them electronically either via the company’s website or through a third-party application aggregator. In the company’s latest reported first fiscal quarter, sales increased approximately 42% to $44.2 million from $31.2 million in the first quarter of last year. Consumer Portfolio Services reported earnings per share of $0.05 in the latest reported first quarter versus a loss in the same quarter of last year. ... Buy.” — Jim Oberweis, The Oberweis Report, September
The final stock I’d like to highlight today is a play on the financial sector that doesn’t carry any of the traditional risks of financial companies. Morningstar, Inc. (MORN) serves the financial sector (as well as independent investors) and thus is leveraged to its growth, but doesn’t carry the risks of an investment bank or other entity that makes loans. Here’s a short recommendation from the Investment Digest, written by directinvesting.com’s Vita Nelson:
“Morningstar is an investment advisory company that operates in two units: Investment Information and Investment Management. The Information segment offers data, software and research products and services for individual investors, financial advisors and institutional clients. The Management segment offers investment consulting, asset allocation, variable annuities and retirement solutions. Dividends started in December 2010 at 5¢ per share, which has since risen to 10¢. ... Recommended.” — Vita Nelson, directinvesting.com, September
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Investment of the Week
