Stockpickr: Buy Banks the 'Mad Money' Way
In Jim Cramer's latest book, Mad Money: Watch TV, Get Rich, he describes his technique for valuing banks: "I know that banks tend to get acquired when they sell at less than two-and-a-half times their book value. ... That's the best way to evaluate banks."
And even in his book Confessions of a Street Addict, published in 2003, Jim mentions that he always owned a collection of regional banks because they paid steady dividends and were stable performers for his hedge fund.
So I did a screen for banks with market caps under $2 billion that are trading for less than 1.5 times book value. I also looked for things such as decreases in nonperforming loans (meaning there isn't much default risk) and increases in deposits and branches (meaning they are probably increasing their future book value).
Here is the resulting portfolio of regional banks with a price-to-book of ratio less than 1.5 times. I also searched among the results to find the banks that were growing assets and decreasing nonperforming loans (meaning they were increasing the quality of their loans). An interesting anecdote is that I added this bank portfolio to Stockpickr Jan. 7, and on Jan. 8, Jim mentioned one of the banks on his show.First, I found Rainer Pacific Financial Group (RPFG). It owns Rainier Pacific Savings Bank, which has branches primarily in one county: Tacoma-Pierce County in the state of Washington.
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