Late last year my Special Situations portfolio bought shares of Waterstone Financial (WSBF 4.51%). At the time the bank was about to complete a second-step conversion to become a fully public institution. The bank came off at a cheap valuation -- just 81% of tangible book value, a real bargain. But it's time to sell the stock because I've found an excellent value somewhere else and I need the cash.
One cheap bank
Yes, Waterstone came out of its second-step conversion at a very attractive price, and that remains today. In fact, it trades at just 84% of tangible book value. And there's still a lot to like about the bank. As it nears the one-year anniversary of its conversion, the company is legally able to repurchase stock. That should be an excellent value driver, as every purchase below book value is immediately accretive to book value per share.
So while I'm selling the stock now, it's purely for reasons of portfolio management. I'm keeping Waterstone on my watchlist, and if and when I have excess cash to deploy in the portfolio, I will definitely give the bank another look.
Foolish takeaway
My decision to sell has little to do with the bank's operations and all to do with another great opportunity I've found. In fact, this new stock yields 9% and I think it could return 50% over the next year. That's huge upside and the massive dividend should buoy the stock even in tough times. My Special Situations portfolio will be buying this high-yield stock later this week. If you want to be the first to know what it is, follow me on Twitter: @TMFRoyal. And check out my dedicated discussion board.
