Small Bank Sector Heating Up

Includes: KRE, RKH, SASR
by: Jim Van Meerten

As always, I start my quest for the next great stock by taking the new high list on Barchart and sorting for frequency. I then take the top 10 and look for something interesting. Yesterday, when all the major banks were getting hit on the chin, the smaller and regional banks seemed to be doing better. Sandy Spring (NASDAQ:SASR) seems to be that small bank I'm looking for.

Sandy Spring is a bank holding company for Sandy Spring National Bank of Maryland. The bank is community oriented, and conducts a full-service, commercial banking business through community offices located in Montgomery, Howard, Prince George's and Anne Arundel counties in Maryland. It looks like geographically, they are in a very strategic region.

The analysts are beginning to take note, and Janney Montgomery Scott, FBR Capital and Robert W. Baird have all recently upgraded their recommendations on this stock. In the last 7 days there have been 5 upward EPS revisions and the consensus is that there will be an increase in revenue of 6.7%, plus an EPS improvement from a 28 cent loss this year to a profit of 83 cents. This constitutes a nice EPS improvement.

On the technical side, Barchart has 4 of the 5 short term technical indicators as a buy, with one hold for an 80% short term rating. The stock had 13 new price appreciations the last month, for a 48% price gain.

Now, I'm not sure which banks are going to survive, but I do know that the industry as a whole will survive. The industry is just too vital to the economy, and with the way we all do business nowadays, it just isn't feasible not to have a place in our communities. Small community banks will survive and Obama has promised to make that happen and give them support.

I'm taking a flyer on this one and adding Sandy Springs to my VMSLO portfolio. This is the more risky of my two model portfolios, but it goes in the risky portfolio because the trading volume recently has been below 100K shares per day.

Disclosure: No positions