H.J. Huneycutt

Cramer's Mad Money - You Can Buy Pretty Much Everything (11/16/09)

NAL doesn't look all that appealing to me. For one, insiders appear to be selling it, rather than buying in. This is not necessarily a signal that it's overvalued, but it might at least be an indication that insiders don't believe the company is significantly undervalued.

My next issue is that I simply don't see the bank as having that much earnings potential. Right now, they are earning about 45 - 50 cents per share on a yearly basis. There seems to be little that could be distorting that figure downwards.

Could an acquisition boost earnings? Sure, but by how much? And would it be worth it?

Tangible common equity appears to be worth more like $8 - $9 per share; if you write down their loans a bit more for safety, you could maybe say that adjusted TCE is about $7 per share.

So, TCE of $7 per share and earnings of 50 cents per share ... what does that make it worth? 12? 15? Guess it depends on market sentiment. But even if they boosted earnings to 75 cents per share or $1 per share ... where does that put it? $20?

The other thing I don't like is that their net interest margins are only 2.8%. Seems a bit low.

All in all, this bank has played things conservatively and could be a reasonable buy, but I'm seeing a lot juicier buys in the sector, even amongst some of the safer banks. But at this stage, you could put every small-cap bank with a sizable equity cushion on a dartboard, blind fold yourself, and toss the dart to pick your buy and you'd still probably make a reasonable return.

Are Safe Haven Investments Really Immune From Current Crisis?

DaveW,

I think you're basically right that Mark does not analyze demand side destruction fully and PAL was definitely a bad buy at $5 (I bought in to). However, at $1.20 or so, the company's equity in their assets is significantly greater than the stock price. Plus, they don't actually have much debt so they don't seem to be in any imminent danger of bankruptcy for the moment. If the stock did indeed go up to $6 in 5 years, you would be making a 400% return, or roughly 80% for each year you held onto it.

Some True Safe Havens Are Still (Surprisingly) Undervalued

Mark,

I always enjoy reading your analysis, but I'm curious about your views on steps that some automakers have taken to reduce palladium + platinum consumption in catalytic converters.

blog.wired.com/cars/20...

www.nano.org.uk/news/j...

It appears that both Nissan and Ford have had some success in reducing consumption of PG metals.