Famed money manager Peter Lynch told us executives can sell their stock for any reason, but typically buy only for one: They think the price is going to go up!
Today I'm highlighting Midwest regional banking concern Huntington Bancshares Incorporated (NASDAQ:HBAN) , which saw President and CEO Stephen Steinour sink more than $281,000 into its stock the other day. Now, this wasn't an option grant, either, but purchases made on the open market just like you or I would do, so we should consider whether this is a sign he thinks the bank is really ready to jump higher.
Huntington Bancshares Incorporated (NASDAQ:HBAN) snapshot
|Market Cap||$6.0 billion|
|Revenues (TTM)||$1.9 billion|
|1-Year Stock Return||23.3%|
|Return on Equity||11.7%|
|Estimated 5-Year EPS Growth||6.4%|
|Dividend and Yield||$0.16/2.3%|
|Insider||Stephen Steinour, CEO, president, and chairman|
|Average Purchase Price||$7.04|
|CAPS Rating (out of 5)||***|
Although following the lead of insiders can be profitable, I still recommend you do further due diligence to determine whether this stock would make a good addition to your own portfolio. So this isn't a call to buy, but just the inside track on a company you might want to check out further.
Funhouse mirrors Regional banks seem to be the underpinning of the financial sector's strength over the past year with some of the largest, such as U.S. Bancorp (NYSE:USB) and Fifth Third Bancorp (NASDAQ:FITB) , scoring impressive stock price gains of 20% or more. Fitch Ratings, in fact, ranked USB as a top-tier bank globally.
Loan growth, as well as mortgage refinancing fueled by the artificial low-rate policy pursued by the Federal Reserve, have been keys to the banks' success. Fitch pointed to USB's mortgage portfolio growth in the fourth quarter -- up 19% from the year ago period and 5.3% higher sequentially -- as an important driver, while Fifth Third said the refi boom has been a significant part of its own growth trajectory, and loans outstanding jumped to $88.7 billion at the end of 2012.
Include Huntington Bancshares in the list of regional winners. It beat analyst earnings estimates recently, as an increase in mortgage lending helped the bottom line. Non-interest income jumped 30% year over year to $298 million, driven in large part by higher mortgage banking income, but also due to a rise in securities gains and those made on the sale of loans.
A lot of banks have been able to boost earnings by reducing reserves for loan losses, and Huntington was no exception. Its provision for credit losses decreased 13%, reflecting a 16% drop in net charge-offs. As a percentage of total loans, loss reserves amounted to less than 2%, an improvement from the 2.6% it recorded in the 2011 quarter.
That's key, because in the hands of less scrupulous managers, these reserves have in the past served as a way to manage earnings. Amounts released from reserves boost income, but without improvements in chargeoffs, it could come back to bite them. But as Huntington is showing, it's able to release the funds because its metrics are improving.
The axis of evil Large money centers such as Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C) were unable to capitalize on the mortgage refi boom because of their legacy issues in the mortgage meltdown as well as lingering distrust of large financial institutions. The former saw fourth-quarter net income plunge 63% because it was still resolving mortgage-related problems from the financial collapse. Originations were flat in the fourth quarter, but down 50% for the full year. They were down 20% at Citi in the fourth quarter to $16.8 billion as it experienced its second consecutive year of lower revenues.
I love the attention my community bank, NVE Bank, showers on me and can't ever imagine switching to a large impersonal bank like Bank of America, Wells Fargo & Company (NYSE:WFC), or JPMorgan Chase & Co. (NYSE:JPM). As it proudly proclaimed on signs around the branch, NVE didn't need to be bailed out.
While Huntington did receive TARP money, it paid that back in 2010 and has been improving its financial profile ever since. At almost 10 times earnings, Huntington is valued at the same level as the well-regarded Fifth Third and at a slight discount to USB, two other Midwest regional banks, but it's also significantly below other regional institutions, such as Zions Bancorporation (NASDAQ:ZION) at 22 times earnings and Synovus Financial Corp. (NYSE:SNV) at 31 times. As Huntington's metrics continue to improve, so should its stock.
On the inside track With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or whether finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether Huntington Bancshares is a buy today, I invite you to read our premium research report on the company today. Click here now for instant access!
The article Huntington Bancshares' CEO Is Buying. Should You? originally appeared on Fool.com and is written by Rich Duprey.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo and (NYSE:WFC) owns shares of Bank of America, Citigroup, Fifth Third Bancorp, Huntington Bancshares, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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