NEW YORK (
) -- Long-term growth investors need to look beyond the largest bank holding companies and consider profitable, growing community banks.
With saturation media coverage for the largest U.S. bank holding companies, in the midst a year-to-date pop in share prices, community banks are getting lost in the shuffle. There are excellent buys out there right now, for investors who can go in for several years.
Many investors are understandably focused on a quick return in a volatile market.
Bank of America
(BAC - Get Report)
, for example, has seen its shares rise 44% through Monday's close at $7.99, but last year the shares plunged by 58%.
The 52-week return on Bank of America's shares through Monday's close, was a negative 44%. BAC could be an excellent choice for a long-term investor with a strong stomach for headline risk, but it looks like a rough ride for the next couple of years, as the company continues to work through its mortgage putback demands.
Bank of America's shares were trading for a heavily discounted 0.7 times tangible book value at Monday's close, according to HighlineFI, and but for a rather high (in the current market environment, compared to other large holding companies) 11.5 times the consensus 2012 earnings estimate of 69 cents a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $1.19.
Are you a day trader? If so, the volatility for the largest banking names is your friend. If not -- if you are truly a long-term investor who can commit for several years -- the "big four" U.S. banks may still be good investments, because of their relatively low price ratios, but you should also consider smaller names with greater growth potential.
Keep in mind that most sell-side analysts' price targets are 12-month targets, which, in the eyes of many analysts and members of the financial media, is considered "long-term." But one year is not a long-term horizon for an investor looking to go along for the ride as a strong bank expands its revenue.
On the following pages we discuss five profitable, growing community banks that analysts see as good long-term plays.
Sterne Agee analyst Matthew Breese has made three of the recommendations, and says "the difference between the megacap banks and these three is we get away from all the headlines, we get away from Greece and dive into traditional community banking, which is growing loans, gathering deposits, and making money off of the spread.
"These are profitable, growing community banks that don't fall under the limelight that all the banks subject to Federal Reserve stress tests are going through right now."
Even though he has no current "Buy" ratings for any of the banks he covers, John Rodis of FIG Partners has listed two long-term choices for growth investors.
Rodis says "the bigger banks get all the press, especially with all the new regulations, and even though the regulations trickle down to the smaller banks, there's less of a direct impact. The smaller banks have more room to grow and take market share. There's not a whole lot of room for Bank of America to grow, for example."
These five names have all had relatively flat returns over the past year.
Here are the
five community bank stocks for long-term investors
, ordered by descending price-to-tangible-book ration. Data was provided by HighlineFI.