Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

I’m Selling Investors Bancorp, Inc. for Something Better

By Jim Royal - Jul 8, 2014 at 1:38PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This bank is fine, but there's something better out there

Earlier this year my Special Situations portfolio bought shares of Investors Bancorp ( ISBC 1.79% ). 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 reasonable valuation -- about 110% of tangible book value -- and it looked like a great pick for the long term. But it's time to sell the stock because I've found an excellent value somewhere else and I need the cash.

One high-performing bank
The best part of Investors Bancorp was its high-performing operations. While most thrifts earn low returns on equity and are at best middling performers, Investors Bancorp has been a solid operator, scoring a 9.3% return on equity in 2013. Nonperforming assets never skyrocketed during the financial crisis -- as they did at most banks -- and today they're well below 1%.

With a new wad of cash from the second-step conversion, expect return on equity to go down for a while. But the company is ambitious, and it's reasonable to expect some acquisitions over the near term that will put that cash to work. And the bank may initiate a stock buyback early next year, as is typical for thrift conversions once they reach the one-year anniversary of conversion.

There's a lot to like at Investors Bancorp, and I expect it to perform well over the long term. So while I'm selling the stock, it's purely for reasons of portfolio management. I'm keeping Investors Bancorp 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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Investors Bancorp, Inc. Stock Quote
Investors Bancorp, Inc.
ISBC
$15.38 (1.79%) $0.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
633%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.