I was born in Salem, Mass., and grew up near the Witch City, so it's only natural that Halloween is one of my favorite holidays. I guess it didn't hurt that, from a child's perspective, Halloween was largely about getting free candy -- lots of free candy -- and I have a very sweet tooth.
But from my trick-or-treating days, only one house really stands out to me, because the residents didn't give out candy to children. They gave out quarters. At the time, I wasn't much interested in receiving a quarter. Sure, I could go buy more candy with it, but the idea of just saying "Trick or Treat!" and shoving my big goodie bag through someone's doorway was much more appealing.
I don't remember what I did with the quarter I received each year, but looking back, I wish I had the foresight to lump the quarters together with some of the money from my paper routes and buy some stock. Specifically, I wish I had bought shares in some of the many local banks that were gobbled up by larger banks over the years. Of course, like most kids, I had next to no idea what a stock was, but kids today need not be as ignorant as I was. With that clever lead-in, I offer regional bank BB&T
Normally, the idea in the stock-market game is to guess which small banks are prime acquisition targets and go buy them, rather than buy a large bank like BB&T. But predicting takeovers is much easier said than done. In BB&T, we get a bank with a history of delivering results to shareholders, and its 3.7% dividend yield offers a great reinvestment opportunity.
The shares trade at a relatively attractive valuation, partly because of trouble the company had digesting a large acquisition (First Virginia) it made in 2003. However, CEO John Allison placed a two-year moratorium on large acquisitions to clean house after First Virginia. He only recently announced that BB&T is ready to re-enter the market for acquisitions, and then only if the size (small) and price (fair) are right.
We're not talking about a bank that was ever damaged goods. Aside from 2003, the company's returns on equity and assets over the last few years have regularly been around 15% and 1.6% respectively, which is solid for a growing bank. In addition, the bank's cash efficiency ratio -- a measure of how effectively a bank leverages its non-interest expenses -- is very solid for a regional bank, at around 50%. (The lower, the better.)
BB&T's shares are most attractive under $40. With the shares currently trading around $42, a little patience may be wise before jumping in. However, anything in the neighborhood of $40 is not a bad deal. This is a well-run bank, and for those who like to see their "quarters" grow year after year, I think BB&T is a tasty treat.
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