Friday, May 11, 2012

BBNK: Banking on emerging tech

Bridge Capital Holdings (BBNK) is a bank holding company with a difference. It bills itself as a professional business bank emphasizing corporate banking and emerging tech companies.

So this San Jose, California company isn't where you open your personal checking account. But if you're developing The Next Big Thing, Bridge might well have a role in your start-up's future.

BBNK had the most bullish chart of 42 stocks added today to the Zacks top buy list. The pool had some really big names, such as US Bancorp, Harley Davidson and Caterpllar. and it is a symptom of the market carnage of the week that the winner is a micro-cap stock, with a market worth of only $234.4 million.

On the chart, BBNK's price has been on the rise since Nov. 30, 2011, when it opened at $9.33. It hit a swing high of $15.92 on May 1, pulled back for two days, and then resumed its rise for seven trading days, so far. It is trading now about 30 cents below the swing high.

Like all banks, BBNK was hammered hard by the recession, so it is trading well below its pre-recession peak of $24.58 set in July 2007.

Bridge Capital has a return on equity of 7% and, unusually for a bank, a very low long-term debt amounting to only 13% of equity. The return is well below growth stock territory, but I love the debt level.

Institutions own only 38% of shares -- the big guns tend to avoid micro-caps -- yet the price has been bid up to a high level. It takes $3.80 in shares to control a dollar in sales.

Earnings have risen steadily beginning the first quarter of 2011, and for the last four quarters have beaten analysts' estimates.

BBNK on average trades 60,000 shares a day. It has no stock options. The stock itself is low beta, moving 60 cents for dollar of the movement on the S&P 500.

Earnings will be published next on July 26. The stock pays no dividends.

Decision for my account: I love the chart and the financials. Clearly, they've found a way in San Jose to make this small banking company sparkle. The lack of options means that there is no way to gain leverage or insure a position. The low liquidity means that a  trader could have difficulty getting orders filled immediately in times of market stress, and the bid/ask spread on the stock is wide, amounting to 41 cents, or 2.7%.

The lack leverage is a deal killer for me. I can get far better returns with optionable stocks. The lack of liquidity and insurability are also big negatives for me. If I were trading BBNK, I would buy the shares and stash them in a quiet corner of my account, playing the position on the weekly chart in order to catch longer-term moves.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.

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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