Editor’s Note: Yesterday we promised to include an entertainment stock pick that we expect to do well in the larger U.S. reopening. However, that recommendation is not quite ready. We will bring it to you soon, and we apologize for the delay.
Want real trading ideas that you can’t find anywhere else?
Try this tiny bank that just moved into the Health Indicator Green Zone on April 1.
Right now, people are talking about Wells Fargo (WFC), Goldman Sachs (GS), JPMorgan Chase (JPM), and all the other big financial institutions. There’s a lot of chatter about the strengths of America’s largest banks heading into the second quarter.
It’s incredible how the mainstream press is so centered on the big banks when there is ample opportunity for investors in little-known names in the sector.
One of the places analysts, retail investors, and journalists are ignoring is the community banking space.
The community banking space doesn’t generate too many headlines. The universe of community banks comprises institutions with fewer than $2 billion in assets.
These aren’t names you’ll see in the Wall Street Journal.
You might even find that many community banks trade “Over the Counter” – which means they’re illiquid and might not trade many shares per day.
Here’s the thing. There’s a secret story about community banks that we want you to know. It’s a multi-trillion-dollar trend that has slid under the radar of retail investors for decades.
We’ve also got a secret weapon for finding the best community banks.
Rules of the Banking Industry
If you’re a community or regional bank in the United States, there are only one or two ways to grow your business.
Your bank can witness significant population growth like the Sunbelt states in Arizona, Texas, and Florida. These states have experienced a wave of population growth over the last decade. With that growth comes a wave of deposits to local banks in the area.
The other option is for banks to purchase one another to grow the user and deposit base.
Believe it or not, there are more than 4,000 banks in the United States compared to the six (that’s right, SIX) in Canada. And each year, the number of U.S. banks consolidates at a pace of roughly 3% to 5%.
Banks consolidate for several reasons.
Many community banks have aging boards of directors that lack a succession plan. Some community banks are facing higher costs in terms of cybersecurity and digital apps.
These banks also face more regulations and challenges from new rivals in the fintech space.
However, investing in community banking has been a smart strategy. Banks trading at very low multiples represent attractive investments. These banks provide solid growth upside due to demographics, strong dividends, and the potential for big gains should these banks be acquired.
This merger and acquisition (M&A) trend remains an intelligent strategy moving forward. And we’ve unlocked an intriguing firm that just entered the Green Zone.
The No. 1 Bank to Own for M&A
Last week, one rock-solid play in community banking moved into our Green Zone.
The company is Citizens Bancshares (OTC: CZBS). According to the TradeSmith indicators, the stock has recently moved into an uptrend and makes for a compelling M&A play for the future.
Citizens Bancshares is an Atlanta-based financial firm that will almost always slide under the radar of investors. With a market capitalization of under $25 million, Citizens Bancshares is the holding company behind Citizens Trust Bank.
Citizens Trust Bank is one the oldest Black-owned banks in the United States and has several branches in Georgia and Alabama. All told, the company has nearly $429 million in assets. It provides a range of personal banking services across the two states.
What’s extremely intriguing about this stock is its valuation. Citizens Bancshares trades at an almost incomprehensible price-to-tangible-book value (T-BV) of 0.53.
Why does tangible book value matter?
Because the T-BV price represents what investors would theoretically earn if a company stopped operating tomorrow and liquidated all its assets from its accounting books.
The per-share tangible book value of CZBS stock is $22.16.
But it trades at $11.75 and provides a dividend of 3.41%.
That sounds like quite a bargain! In an arena where community banks are consolidating, investors can buy, hold, and wait for CZBS to become an acquisition target.
Even if the stock is purchased at its Tangible Book Value, investors would be looking at a possible double on their money. However, it is possible that more investors recognize the true value of this stock (and the value anomaly behind it) and start to buy up the shares.
Remember, Citizens Bancshares trades Over the Counter and is very illiquid. It requires that investors place a limit order on the stock. If you are interested in this stock after more research, contact your brokerage on how to purchase it.
Remember: DO NOT BUY CZBS shares at Market Price.
Otherwise, it will fuel a sharp uptick in prices.
Consider a limit order of $11.60 and leave it Good-til-Close in May 2021.
Citizens Bancshares won’t make headline news and likely won’t get featured in the Wall Street Journal anytime soon.
Yet, its potential to grow your wealth — at a bargain price — can’t be ignored.
It’s thanks to the tools of TradeSmith that we were able to find this trade.
In fact, our tools can help you build your wealth in ways you never thought possible.