While blue-chip stocks roll toward a new high, community bank and thrift shares still trail the market-badly in some cases.
Wall Street analysts bemoan misunderstandings and missed opportunities among these stocks. But it may be that they simply await their turn from investors whose stomachs only recently returned to normal after the market's wild ride.
Indeed, the badly battered thrift sector stirred to life last week in the wake of the Federal Reserve's latest interest rate reduction. (See related report on back page.)
Smaller stocks have typically followed in the wake of larger ones in market rallies because the larger stocks benefit from better visibility and liquidity. Still, some community bank stocks have lingered an unusually long time on the fringes of the action amid a powerful market updraft.
"Misperceptions," including fear that these companies are not good consolidators or that stocks are not "liquid," or easy to trade, have held the shares back, according to Mark Fitzgibbon, a managing director at Sandler O'Neill & Partners.
"A lot of companies are being unfairly overlooked," he said.
Mr. Fitzgibbon and other analysts said the neglected group includes some banking companies whose shares have fallen after acquisitions and thrifts that operate much as community banks.
Republic Security Financial Corp., West Palm Beach, Fla., is trading at a discount to its peers despite being well run and the largest independent bank left in Florida, with $950 million of assets, Mr. Fitzgibbon said. "The bank has been very acquisitive, and investors are taking a wait-and- see attitude."
He said the company is successfully boosting trust and commercial lending.
Among thrifts, Mr. Fitzgibbon says, he likes WSFS Financial Corp., whose balance sheet and income statement resemble that of a commercial bank.
One-third of gross revenues are derived from fee income, and the company has a 20% return on equity.
Management's philosophy at this Wilmington, Del., company is that "they have to earn the right to remain independent," Mr. Fitzgibbon said.
Sean Ryan, a banking analyst at Bear, Stearns & Co., said Summit Bancorp, a Princeton, N.J., regional, has been overlooked by investors. "This is a good bank with an unjustified discount," he said.
GreenPoint Financial is delivering in a way that few are, said Michael Hodes, a financial institutions analyst with Goldman, Sachs & Co.
The New York thrift company combines leading national market positions in specialty housing finance with solid funding and retail banking attributes, Mr. Hodes said. "Differentiated asset generation capabilities are strengthened by leading positions in no-doc lending and manufactured- housing finance."
No-doc mortgage lending, in which the company requires little employment or financial documentation from borrowers, "uses a strong collateral focus, high-down-payment requirements, and an aggressive posture on collections" to keep losses to a minimum, Mr. Hodes said.