Monday, January 30, 2012

FBMI: Community Banker

Firstbank Corp. (FBMI) headquartered in Alma, Mich. -- north of Lansing in the middle of nowhere -- had the second best chart of the 17 stocks newly added to Zacks top buys list.

The very best chart was Apple Inc. (AAPL), but since AAPL gets written about all the time everywhere by everyone, I've decided to go with #2 for my write-up rather than add to the Applish punditry.

(See my essay "10,000 Charts" for a discussion of how I select stocks.)

FBMI is no Apple. It has an average volume of 6,023 shares a day compared to Apple's 14.4 million. A share of FBMI costs $6. Each share of Apple sells for more than $450. FBMI runs seven small banking subsidiaries, all in Michigan. Apple is a powerhouse of technical innovation that spans the globe and no doubt looks forward to an iPad 4 accompanying astronauts to Newt Gingrich's colony on the Moon.

To see them both on the same top picks list is a little shocking, even more to see them with competing for top chart.

FBMI is not a jump-out-obvious pick for a bull play. Like all banking companies, its stock suffered greatly from the collapse of global finance. After hitting bottom in 2010 at $3.98, it remains far below the $22 range it saw during the good old days before the crash.

AAPL -- a much more obvious chart even if the trader knew nothing else about the company -- also saw a sharp recession decline, bottoming in 2009, but it has since pushed ever upward to new heights.

I like FBMI's chart precisely because it is in the early days of its recovery. Any dollar that could be invested in AAPL is already invested. FBMI is still a bit stealthy.

From its low, FBMI's stock has set a high, and a lower low, and is on the way back up, on volume, as it challenges resistance set last July. Once it soaks up that money, there will be no resistance until the prior high at $7.51, set in early March 2011. Any move above that level marks a higher high and therefore establishes an uptrend.

FBMI stresses local control and community lending by its banks. That puts it at the forefront of the economic recovery, if in fact the economy is recovering. (I judge that it is, but there are many naysayers about.)

The financials are nothing to cheer about -- return on equity is 3%, debt to equity is 0.53 (a bit high, but that's common for banks), and price to sales is 0.72. Price/earnings is 11.73 -- not high at all.

Earnings have been accelerating the last new quarter -- 15 cents in the 3rd quarter of 2011 and 22 cents the 4th quarter, and revenue has increased in each of the last four quarters.

Amazingly, FBMI does have some institutional owners, who hold 17% of shares.

So, for me, this is a different sort of play. It's not a momentum stock, except in the narrowest of senses. It's more of a value play, perhaps -- buy low and wait for the high?

The King of Value, Warren Buffet, would hate FBMI because it is small, illiquid and unknown outside of its narrow region. Yet arguably, it will be such small community banks that power the better known brands as better times return, be it manufacturing start ups or the new restaurant in town that everybody loves.

FBMI has no stock options. It is shares or nothing. For a practical trading, it's the sort of stock that I would buy and stick in the corner of my trader's hope chest, and I would pull it out once a year to see how it's doing.

Decision for my account: I'm not opening a position in FBMI because it is tied to such a narrow geographical region, and moreover, one that is prone to industrial collapse. Moreover, although Michigan is smart state with a lot of talent and manufacturing wisdom, I'm not convinced that manufacturing is in fact the American future. A community bank in a community that looks to the past has a dismal future.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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