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During my recent bout with COVID, I spent my quarantine days in my office. I have everything I need in there with a TV, my computers, my books, and a day bed. I was only in there for the required five days, and for the last three, I felt pretty good, thanks in large part, I suspect, to Pfizer's Paxlovid treatment.
When left to my own devices with lots of free time and access to vast amounts of data, a computer, and a high-speed internet connection, the inevitable happens: I start crunching numbers and testing ways to make money.
As usual, I killed a lot of ideas that sounded good but tested very poorly.
But one system that combines three of my favorite concepts did pass muster, and I have to say, produced fantastic results.
See, I'm a huge fan of companies with solid fundamentals that are buying back stock and also seeing insider cluster buying.
I set up portfolios of companies with high scores on the Piotroski F Score fundamentals checklist, reduced their share count over the past year, and saw at least three insiders buy shares in the open market over the last several months.
I then limited purchases to just the ten stocks with the highest F Scores. Finally, I rebalanced the portfolio every six months.
This combination - stock buybacks, insider buying, and strong "Econ 101" balance sheets - is a market beater. It crushed the S&P 500 in 86% of the periods I tested.
In the current environment, where many of these stocks are trading at a huge discount, that means there's an opportunity for investors to set themselves up for incredible gains when the market rebounds.
I've got three picks for you here that made my list - two community banks and a fintech company that those banks are going to depend on for service. Here they are...
Two of the Oldest Small Banks in America
Peapack-Gladstone Financial Corporation (NASDAQ: PGC) is a 101-year-old bank based in Bedminster, New Jersey. They have 20 branches with a little over $6 billion in total assets. The loan portfolio is heavily skewed towards commercial real estate and commercial and industrial loans.
They are good at making these types of loans, as their nonperforming assets ratio is just .25% of all assets.
PGC also has a very well-run wealth management business with over $10 billion in assets under management. In addition, they have done an outstanding job of acquiring smaller wealth management firms and bringing them under the Peapack-Gladstone roof.
The bank serves some of the nation's highest-income counties and tailors its private banking and asset management businesses to meet the needs of the wealthy.
The stock is changing hands at just ten times earnings right now. Insiders have been buying shares in the open market, and in the first quarter of the year, the bank repurchased 300,000 shares of Company stock at an average price of $37.26 for a total cost of $11.2 million.
We can buy the shares well below that level today - $30 as of this writing - and take a nice ride as it climbs back up.
Byline Bancorp Inc (NYSE: BY) out of Chicago also makes the cut on our buyback and insider buying model. The 107-year-old bank has 49 branches with about $6.9 billion in total assets. Byline's loan portfolio is almost entirely business and commercial real estate related, with minimal consumer or single-family mortgage lending done by the bank.
Byline has also done an outstanding job of managing the loan portfolio. As a result, the bank has very low levels of nonperforming assets and delinquent loans.
This bank is also cheap at just ten times earnings. As a result, insiders have taken advantage of bargain pricing in recent months. In the first quarter, Byline bought back over $8 million worth of its stock to take advantage of the favorable valuation levels.
It's already seen a 2.5% jump in the past five days and is likely to keep climbing.
Community Banks Are a Captive Audience for This Fintech Firm
Fiserv Inc (NASDAQ: FISV) is a financial technology company that is one of the largest providers of core technology platforms for the banking industry. They work with all sizes of banks and credit unions to provide the needed payments and digital banking products to serve their customer base best.
Fiserv has also ramped up its efforts to be a payment and digital service provider to the fast-growing fintech industry. As a result, this part of the business should be one of the significant drivers of earnings growth in the future.
The core business with banks will grow as well. Even the smallest banks in the smallest towns find that their customers need them to keep up with the gold standard of digital products and services offered by larger banks like J.P. Morgan.
Regional and community banks cannot develop these in-house, so they must turn towards Fiserv.
Insider and large stakeholders, including ValueAct Holdings, have been buying company shares in recent months.
The company itself has also been an enthusiastic buyer of its shares. In the first quarter of the year, Fiserv repurchased 5.1 million shares of common stock for $500 million in the first quarter of 2022.
And the overall financial picture is very rosy after a strong Q2 earnings report, showing revenues of $4.14 billion (up 10.2% YoY), and a net profit margin of 16.17%. Unlike a lot of other tech firms running on debt, these people are actually making money, and as they keep growing, the stock price will follow.
It's more important than ever for investors to find these kinds of market-beating picks, because we're not at the end of the bear market yet - the S&P is still down over 17% for the year, representing a $2.3 trillion loss that's going to hit a lot of everyday folks in the wallet. Pensions, 401k's, IRAs - you name it - they're all taking massive hits.
But there are some moves investors can make right now that can "bully" down this bear market, if you know where to look. My colleague, Shah Gilani, has a set of stock picks that are his version of fire insurance - the best cheap trades he can find right now with the best potential for safe returns.
And you can get them all for just $5. Go here for all the details...
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.