Thrift stocks still trail the big banks' issues in terms of recent performance, but industry observers say this may be the year for S&Ls to shine.
"You can make money here just as you can in a growing industry," said analyst Thomas O'Donnell of Smith Barney. "Thrifts are innovatively using their capital, and benefiting from improving economies."
Thrift stocks are appealing on several levels, added John Rezai, director of research at Blaylock & Associates. "Investors are seeing some clear pictures of core earnings and operating potential for these firms. Investors are really thinking about takeout plays and interest rates."
That kind of optimism about thrifts fueled heavy investor interest in the public offering by Roslyn Bancorp, when depositors lined up to buy in excess of five times more equity than the company had expected.
But generally, Mr. O'Donnell said, 1997 will be "a year of singles, not home runs" for thrift investors.
"This is going to be a good year to invest," he said, "but investors may have to be more selective."
According to SNL Securities LP, Charlottesville, Va., thrift stocks rose 30.4% in 1996, while the all the banks rose 38.4%. Meanwhile, the S&P 500 has gone up only 22.1%.
Shares in the larger thrifts are doing the best; stock prices of companies with assets over $5 billion are up 36.6% on average, while shares in smaller thrifts have gained only 20.93%, SNL said.
Mr. O'Donnell estimates that in 1997, his index of 19 thrifts will rise another 10% to 20%. "Its going to be steady as she goes," he said.
Analysts say that strengthening economies, particularly on the west coast, have boosted the stocks. In addition, they cite stock buybacks, restructurings, growing consumer loan portfolios and takeover speculation.
The government has helped, by allowing thrifts to become more bank-like, and by making it easier for banks to buy thrifts.
And finally, analysts note that the one time fee to pay for the savings and loan insurance premium has already taken place, meaning future earnings will be much stronger.
Ross Demarly, research analyst at McDonald & Co., Cleveland - who noted that in the last three months, the thrifts and mortgage banks he follows are up 17%, versus 8% for regional banks and 10% for smaller banks - said commercial banks could use their excess capital to buy thrifts.
But some are skeptical that most thrift can make the transition to commercial banking.
"Its exceptionally difficult to change to a commercial bank," said Gerard Cronin of John Hancock Funds. "They are two different mentalities. You really have to change the culture, and that's a tough thing to do."
Frank Barkocy of Josephthal Lyons & Ross said that if the savings association and Bank Insurance funds are melded together, thrifts will get on equal footing with commercial banks.
"With that controversy behind them, some concerns about thrifts have been cleared up," Mr. Barkocy said.
Mr. Barkocy added that bargain-hunting investors seeing the run-up of the whole group, may be looking at thrifts as a way of participating in the market as they have not before.
"The smaller thrifts are picking up momentum," he said. "The consolidation and acceleration in the industry is pretty broad based. Thrifts running into revenue walls are looking into the benefits of consolidation to generate profits and justify the costs of technology."
Mr. Barkocy's favorites are Greater New York Savings Bank, Poughkeepsie Savings, Albank Financial Corp., and Dime.
In trading Wednesday, banks overcame a weak market with many issues gaining even as the Dow Jones industrial average fell back from its record high.
NationsBank Corp., which completed its acquisition of Boatmen's Bancshares, led the bank rally. Lawrence Vitale of Bear, Stearns & Co. reiterated a "buy" rating on the stock, which closed up $2.37 to $101.25.
Other gainers included J.P. Morgan & Co., up $1.12, to $99.37; Chase Manhattan Bank, 87 cents, to $87.62, and First Union Corp., 75 cents, to $75.12.