Small Bank, Big Profits

In This Issue: Small Bank, Big Profits What the GOP Wave Means for Utilities The Great Global Stock Market Rethink Breaking Market News – Stunning New Technology Unleashed Everywhere you turn these days, you'll see impressive technology, from the smartphone in your pocket to a TV you can hang on your wall. Ten years ago, no one would have dreamt anything like this was possible. And now a stunning new technology has been unleashed: robot-driven vehicles. Forget about waiting for the wonder kids at Google to figure out self-driving vehicles. I've found an industry that's been using them for years with stunning effectiveness. One company saved $2 billion thanks to these robots… and they're just getting starting. Click here to take part in their profitable story. Small Bank, Big Profits 11/07/2014 By Benjamin Shepherd The Federal Reserve released its Beige Book last month, a report published eight times a year that looks at current economic conditions in each Fed bank district. The latest edition painted a fairly rosy picture for banks. According to the report, banking conditions have improved across most of the Fed districts, with loan volumes growing and credit problems continuing to dissipate. In fact, none of the districts reported any deterioration in credit quality with most banks adhering to fairly tight lending standards. That didn't protect the financial sector from last month's market swoon though, with banks generally plunging along with the broader indexes.One bank actually dodged the worst of that decline, though -- First National Bank of Long Island (NSDQ: FLIC). The largest nationally chartered bank on Long Island, First National taps into some of the richest demographics in the New York City suburbs. Thanks to the bank's well-heeled customers, its loan book has posted steady growth over the past decade, including in the worst years of the recession when many banks were struggling to stay afloat. The bank's average loans outstanding have grown by more than 25% in the first three quarters of this year alone. Despite that steady loan growth, the overall credit quality of the loans has remained excellent. As of the end of the third quarter, loans past due by less than 90 days accounted for just 0.23% of the bank's total loans outstanding. While there has been some fluctuation in the number over the past several quarters -- at the end of last year it just 0.01% of total loans -- that has mostly been due to problems with specific loans. That's still well below the national average of 1.2% for similar sized banks and First National has been able to step down its loan-loss provision, the money set aside to cover any bad loans, with the reserve falling from 1.41% of assets at the end of last year to 1.34% at the end of the third quarter. Even with the lower reserve level, it still covers nonperforming loans by 9.7 times. First National has also gotten a boost from its bond portfolio, which consists mostly of mortgage securities and municipal bonds. Its mortgage bonds are backed by conventional mortgages, with more than 80% guaranteed by the Fannie Mae and Freddie Mac, insuring the bank against losses if the bonds were to go sour. Its municipal bond holdings are also highly rated by the credit agencies, though the bank also performs its own due diligence so there are two layers of credit analysis on each bond. The bank has also caught a tailwind from its deposits in this low interest rate environment. About a third of its deposits are in non-interest bearing checking accounts, reducing the bank's overall interest expense and making its loans much more profitable. That tailwind could become a gale-force blow for earnings as interest rates rise; the bank will be able to make loans at higher rates even as it pays no interest on about a third of the money it loans. Largely because of that steady loan growth and solid credit quality, 10-year average revenue growth at the bank has been running at 5.9% while earnings per share have grown 5.5% over the same period. First National's dividend has also been steadily growing, up from a total annual payout of $0.26 a decade ago to $0.72 this year for a yield of 2.8%. That bank has maintained an average payout ratio of about 40%, so as earnings rise with interest rates we can expect attractive dividend growth to go along with it. Going forward, First National of Long Island plans to open its 40th branch by the end of this year and has said it will aggressively expand when interest rates begin rising. Despite being one of the largest banks on Long Island, it is still a relatively small bank so it is nowhere near bumping up against the Federal Reserve's rules limiting a banks market share in each metropolitan area. Even with its 40 branches, Long Island encompasses more than 1,400 square miles and is so densely populated that come believe it should be a state in its own right. So First National clearly hasn't saturated its market and has plenty of growth potential ahead, something which can't be said for the large national banks. Turning in steady growth over the past decade and about to get a boost from rising interest rates, First National Bank of Long Island is a terrific buy up to $31. Don't Follow the Herd Off the Cliff The market may be up again. But for how long? If you've been searching for investments that are safe AND deliver massive streams of income… your search ends today. I've discovered a sliver of the market that offers investors ultra-safety and yields up to 11%. Click here to get the high-income details. What the GOP Wave Means for Utilities 11/06/2014 By Richard Stavros The Republican takeover of the Senate that resulted from the recent midterm elections will have major implications for the utilities sector. Indeed, with control of both chambers of Congress, Republicans are expected to push back on proposed Environmental Protection Agency (EPA) emissions rules for existing and future coal plants. Coal-heavy utilities that have been discounted for years in anticipation of the billions in costs they would incur to meet such rules could now see their valuations upgraded as a lower cost of regulatory compliance offers investors greater earnings visibility. Meanwhile, utilities that have been playing a clean-technology strategy in anticipation of EPA carbon regulations making renewables or low-carbon emission investments more valuable could themselves be discounted if these investments prove costlier in the absence of such regulations. To be sure, congressional turnover will not necessarily upset state-level efforts to encourage renewable energy through various mandates, but the EPA rule was seen as a major driver of the wholesale shift in utilities' fuel mix toward lower carbon-emissions technologies. That being said, some argue that a reversal in the EPA rule would have little effect on the industry's move toward natural gas, which is cheap and abundant thanks to prolific U.S. shale plays. And being able to site a coal plant is near impossible these days as local politicians and regulators routinely yield to NIMBY (not in my backyard) sentiment. Though market dynamics could be a countervailing force to any effort that would preserve the status quo, it remains to be seen to what extent Republican initiatives will curtail environmental regulations that it deems as an impediment to economic activity. Republican have for years characterized President Obama's climate plan as a "war on coal," and threatened various tactics to kill the EPA rule, which would for the first time set limits on greenhouse gases emitted from electricity production. And though the Supreme Court has affirmed the EPA's authority to regulate carbon emissions, there are multiple ways that the initiative could be derailed. According to a Bloomberg analysis, "The Senate could pass a resolution to nullify the requirements using Congressional Review Act procedures that allow Congress to overturn rules, or Republicans could attach language to appropriations bills that would block the EPA from using funds to develop or implement the regulations." Further, the analysis found that since the president would almost certainly veto any resolution to kill the centerpiece of his climate agenda, the greater threat to the regulation could be through the appropriations process. Spending bills could prove more difficult for Obama to veto, particularly must-pass measures needed to avoid a government shutdown. And with a Senate majority, Republicans will now chair the powerful energy committees, including the Senate Committee on Environment and Public Works and the Senate Committee on Energy and Natural Resources, which are expected to be led by Sen. James Inhofe, R-Okla., and Sen. Lisa Murkowski, R-Alaska, respectively. Control of these committees will allow Republicans to further reevaluate and change environmental rules and regulatory actions. Certainly, these initiatives should not be viewed in a vacuum. Though there are segments in the utilities industry that would like nothing more than to reverse emissions regulations, many other utility executives have long espoused the view that carbon-emissions regulations are inevitable and have predicated their long-term strategies on this assumption. In an effort to find out how the utilities industry plans to respond to possible changes in policy as a result of the Republican takeover, I will be attending the industry's top finance conference next week and will be sharing any insights gleaned from this event in future editions of Utility & Income. The annual Edison Electric Institute Financial Conference, which is attended by the vast majority of Utility Forecaster portfolio company executives and investor relations teams, has various meetings planned that will look at many of the issues facing the industry that we have covered over the past year. The conference will be focusing on utility strategies to enhance the grid, the role of distributed generation, and cyber security, among other areas. We also plan to take in as many earnings presentations as possible and share with you any strategies or themes that could make for promising investments. Subscribers to Utility Forecaster get to read the full update and learn which utility is best positioned for virtually any regulatory environment. This article originally appeared in the Utility & Income column. Never miss an issue. Sign up to receive Utility & Income by email. Is Your Portfolio Bulletproof? If you answered no, or you aren't sure, then you need to get your hands on the five companies I'd like to show you today. Each of these stocks will allow you to weather any downturn. It doesn't matter if it comes next week, next month… or even if it never comes. That's their beauty – they're immune to economic shocks and can deliver profits in any market. Get their profitable details here. The Great Global Stock Market Rethink 11/07/2014 By Richard Stavros If you've been an investor long enough you know the market can behave in maddeningly bizarre ways. Now is one of those times. For example, it strange oil prices would be so low while most economists forecast global growth. Also bizarre: European stock markets rally on news of the GOP winning control of Congress. And why would U.S. stock markets rally on news of European and Japanese stimulus, particularly given how small these programs are as compared to the U.S. stimulus? What I think is contorting global markets is that in the absence of unprecedented U.S. stimulus that supported them, investors are re-pricing, rethinking and reevaluating just about everything. It's what I call the Great Global Stock Market Rethink. This will mean choppy markets (and require tough stomachs), but also potential new opportunities. Here I review major market trends and how Global Income Edge is thinking about them as opportunities. Trend #1: Unbelievably Low Oil Prices Everyone I know in the energy industry is trying to make sense of the recent fall in oil prices. Is it an oversupply, a fall in demand, or Saudi Arabia trying to knock out higher-cost competitors by flooding the market? I learned years ago that only fools bet on oil prices in the short term, and that oil and gas investments are for long-term investors who can stomach volatility. Oil and gas investments are lumpy. The industry chases demand for years and inevitably oversupplies the market. Then prices drop and the industry cuts back. Then prices rise. How long this present retrenchment will take is anyone's guess, though I believe that when global growth reasserts itself we will see a major shift to higher oil prices. How to Rethink Oil The fall in oil prices will provide the equivalent of a tax cut for consumers and increase purchasing power. Low oil prices will improve margins in Global Income Edge's portfolio companies as they already have pricing power and are globally diversified. But low oil prices open up the opportunity for consumer stocks. And low oil prices could improve the fortunes of shipping companies that have been struggling as one of the industry's major costs, oil, is being cut. The question is will an increased demand for shipping follow increased consumer spending around the world on products and services. We'll be watching this trend closely. Trend #2: The Republican Control of Congress Why would European stock markets rally on news of the GOP winning control of Congress? Maybe Europeans feel a kinship with Republican House Speaker John Boehner's because like many Europeans he appreciates smoking, and drinking good red wine. More likely they think GOP influence might translate into improved trade agreements as Republicans have signaled they will move to fast track various trade deals next year that have been stalled. While many of these agreements are focused on opening markets for U.S. firms in various Asian countries, they will also benefit trade between all of America and major trade partners. How to Rethink Congress The GOP control of Congress is going to benefit multinationals, including many of the firms that are in the Global Income Edge portfolio. The lowering of trade barriers means more access to growth markets and greater earnings. The other opportunity is infrastructure. The GOP has signaled that it's going to support greater infrastructure spending in the U.S. As we have noted in previous reports, crumbling infrastructure in developed countries and a surge of infrastructure building in developing economies will mean 4% annual growth on infrastructure investment "well into the second half of this decade, pushing total investment to $4 trillion," according to a Bain & Company report. We are looking for suitable investments in this area, and will be watching for which sectors could benefit most by stronger trade. Trend #3: European and Japanese Stimulus Last week we wrote that the European market is oversold and that we are optimistic about a recovery given the European Central Bank has unveiled plans to bolster companies' and households' access to financing. Also, we're encouraged by a U.S. Federal Reserve style stimulus program that will pump as much as $1.26 trillion into Europe. Then last week, the Bank of Japan raised its annual target for monetary expansion to $724 billion from as much as $610 billion. Both of these have sent stocks around the world, including in the U.S., soaring. We believe the stimulus could be a boon and will likely drive European and Japanese corporate earnings and stock prices higher. How to Rethink Stimulus The U.S. economy has had a number of positive developments recently, such as the recent third-quarter growth in GDP of 3.5% and an improving labor market. But there is a realization that the recovery is at risk if the rest of the world does not also grow, particularly because 40% of S&P 500 companies have more than 40% of their earning overseas. That's why efforts to revive and sustain America's major trade partners will ultimately be good for America. These developments are clearly an opportunity to focus on U.S. firms doing business in Europe and Japan, as well as European and Japanese firms doing business in the U.S. In the coming issues of Global Income Edge, and our e-letter, Income Without Borders, we'll be outlining investments that stand to benefit from these new trends.   This article originally appeared in the Income without Borders column. Never miss an issue. Sign up to receive Income without Borders by email. The One and Only Profitable Way to Trade Options Option buyers lose money on 7 of every 10 trades. They place high-risk trades, hoping for a big payout. But they lose – a LOT! But I don't buy options. Instead, I flip them on their head and do this with them. When I do, I make money 82% of the time. I turned $50,000 into $5 million trading options this way. To know my little option secret, you must click here. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy Copyright 2014 Investing Daily. All rights reserved. Investing Daily, a division of Capitol Information Group, Inc. 7600A Leesburg Pike West Building, Suite 300 Falls Church, VA 22043-2004 U.S.A.