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This column was originally published on RealMoney on Oct. 24 at 10:29 a.m. EDT. It's being republished as a bonus for readers.

Buying a competitor that doubles your size is always chancy. And carrying off the acquisition smoothly, well, that's impressive. There's a bank based on Long Island that just accomplished this feat and is now basking in its success. Two of the guru strategies I use are applauding.

Melville, N.Y.-based

North Fork Bancorporation


is by asset size the 16th-largest bank holding company in America. It operates North Fork Bank, the third-largest bank in the New York metropolitan area, on the basis of deposits.

It has $60 billion in assets and about 360 branches in New York, New Jersey and Connecticut. Through a subsidiary, GreenPoint Mortgage Funding, it originates single-family and small commercial mortgages.

Between 1994 and 2004 it made about a dozen acquisitions, the biggest fish being GreenPoint Financial of New York, which it bought last year for $6.3 billion. GreenPoint was larger than North Fork on an asset basis, but its stock market value was lower.

We can expect North Fork to make more acquisitions. Right now, though, bank prices are high, and North Fork seems to be biding its time, waiting for the right bank at the right price.

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The stock has dropped from the upper $20s to about $24 over the past three months. In the second quarter of this year, ended June 30, its EPS fell 7%, and that helps explain the drop. But this is a company that has a solid position in its market, knows how to make acquisitions, is in a geographic area that is doing well economically and is in a position to rebound from its recent small slump. Plus, the company has just increased its stock buyback program. I think that at their current price, North Fork shares are a good pickup.

Let's look at what my guru strategies say about this growth-minded moneymaker.

The Peter Lynch Strategy

North Fork is a "true stalwart" in Lynch-speak, as its growth rate of 14% (based on the average of its three-, four- and five-year historical EPS growth rates) is between 10% and 19%. These stocks generally gain 30% to 50% in value over a two-year period if purchased at an attractive price based on the P/E-to-growth ratio.

The bank's yield-adjusted P/E/G ratio is a respectable 0.67; 1.0 or less is acceptable. The EPS for a stalwart company must be positive. North Fork's EPS for the trailing 12 months is $2.

My Lynch methodology expects a healthy bank to have an equity/assets percentage over 5%. North Fork's is a robust 15%. To measure a bank's profitability, we use return on assets. North Fork's ROA of 1.94% exceeds the Lynch strategy's minimum of 1%.

The John Neff Strategy

My strategy based on the writings of John Neff also singles out North Fork. It looks for a P/E between 40% and 60% below the market average P/E. With the average currently at 20.0, the acceptable P/E range is 8.0 to 12.0. North Fork just makes the grade with a P/E of 11.9.

For dividend payers, this strategy likes to see a historical earnings growth rate between 7% and 20%. North Fork's is 14%.

The historical growth rate should be confirmed by the consensus future growth estimate of analysts for both the current fiscal year and the long term. Both growth rates must be greater than 6% for dividend paying stocks. North Fork's projected future EPS growth rate is 15.7% for the current year and 10.6% for the long term.

The Neff strategy requires that earnings growth be fueled by corresponding growth in sales greater than 7%; North Fork easily clears this hurdle with a sales growth rate of 11.2%.

Also desired are stocks whose total return (EPS growth plus yield) divided by the P/E ratio is at least double that of the market average, which is currently 0.66. North Fork fits the bill with a total return to P/E of 1.49.

North Fork fails one Neff strategy test. It had negative free cash flow of -$1.63 per share for the last fiscal year. The strategy prefers investment prospects to have a positive free cash flow, but this isn't a make-or-break requirement.

For the last four quarters, North Fork's earnings have increased from the same quarter a year ago, which the Neff strategy also looks for.

North Fork shares are down a bit from their recent high, but the company is well managed, has good market position in the suburbs of New York and shows it knows how to grow via acquisitions. Consider this an opportunity to add a solid financial institution to your portfolio.

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At the time of publication, Reese was long North Fork Bancorporation, although holdings can change at any time.

John P. Reese is founder and CEO of, an Internet investment research and stock analysis firm selected as one of Forbes Best 100 sites on the Web. He is also co-author of

The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback.

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