I had a long talk today with an old friend who used to work at the same brokerage firm I did for more than 15 years. It as a small regional firm and we did a ton of business in community bank stock and long municipal bonds. This was a great way to approach the business and both markets were pretty much a win-win situation. The firm made money, the clients made money and we brokers got paid pretty well for peddling the stuff. It was the brokerage business at its very best. We sold local stock and bonds to people who wanted to buy stock and bonds for a fair price and everyone was happy. There was no asset gathering, money manager evaluations, tactical asset allocation models, financial plans or any of the other foolish sales tools they pass off as client services these days.

Today of course that has all changed. There are very view of those little regional firms that peddle stocks and bonds. My old firm was gobble dup years ago by a mush large firm and good old fashioned stock brokers have been replaced by financial consultants and advisors. One of the biggest changes was noted by my friend today. He and I were both big in trading community banks for clients and that line of business is just gone from the full service firms today. The larger firms have no interest in providing research coverage and market making for micro cap banks. Most of the do not want their FA’s and FC’s selling illiquid securities to their clients and do everything possible from a management and compliance perspective to discourage trading and investing in these little gems.

The absence of the little regional firms form this market is just one of the factors that have made these trade of the decade stocks are so attractive. Back in the good old days we would call out trader first thing in the morning to see what little banks our firm had accumulated the day before and would be on the phone with everyone who owned a business or lived around the local branches offering the stock. That buying source is gone today and as we know most of them are too small for the big funds or institutions to bother with them. With the exception of a handful of specialist funds and activists we have the community bank market to ourselves.

It is one of the few segments of the market where there are still a lot of bargains to be found. My buy list for the Banking on Profits Portfolio newsletter had 15 buy rated stock this week and we added two new ones during the week. The average price to book multiple for the buy list was about 77% with equity to asset ratios well over 10 and nonperforming assets were on average less than 2%. The tow stock averaged 67% of book value, equity to assets ratios over 11 and nonperforming assets of 11.4. These are solid little banks at large discounts from tangible book value and all them are small enough that they have to be considered probable takeover targets in the next few years. Compare the price to book value multiple we are paying for our banks to the average takeout multiple in the second quarter of 1.45% and you begin to get an idea how much money there is to be made here.

There other pockets of cheap in the markets. In the deep value portfolio we have been finding bargain sin mining and energy stocks. In recent weeks we have bought European food stocks and still like many of the banks in the old world. There are few high yielding REITs trading below book that are attractive. M-REITS and Business Development Companies offer an attractive combination of cheap valuations and high yields. However the community bank space offers the most inventory and has the best risk to reward setup in the market today and ignoring this opportunity is hazardous to your wealth.

We are now coming into one of my favorite times of the year. It has nothing to do with cooler weather, changing trees and brisk fall breezes. I moved south to get away from all that stuff. To me crisp weather is anything below 75. September and October are the best months of the year for a sports junkie like me. We have college and pro football and best of all the last month of the pennant race in major League baseball followed by the playoffs. No is safe this year not even my AL East leading Baltimore Orioles and the races in the AL Central and West good be epic. The Brewers will be trying to hold off the Cardinals and Pirates and get Hank the Wonder Dog into the playoffs. All the races are close enough to be entraining so this should be some great baseball. College football kicks off and Navy will be looking to win another Commander in Chief trophy and the Florida gators will be trying to become the great turnaround story of 2014.

It’s not just sport either. The fall book season kicks off and the list of great authors with new book coming out in the next two months is truly epic. In September alone we have Clive Cussler, Carl Hiaasen, Lee Child, Dennis Lehane, Reed Farrel Coleman with the continuation of Robert Parkers Jesse Stone series, Ken Follett, J. D. Robb, James Patterson and Jonathan Kellerman have new books coming out. On the nonfiction side Guy Spier’s Education of a Value Investor is one of my most anticipated titles of the year. The October release list is even better. It is an embarrassment of riches.

If you are not in the trade of the decade you can join us here and access the managed portfolio in my Banking On Profits VIP Service http://www.marketfy.com/item/banking-on-profit/.

Cheers,

Tim

Labor day is almost here and it time to

https://www.youtube.com/watch?v=62ZSQUyU00s

into a great fall of sports, good books and cheap stocks