Sokol's Bank Pick by the Numbers

NEW YORK ( TheStreet) -- The day after he resigned from Berkshire Hathaway ( BRK.B), investors flocked to piggy-back on David Sokol's investment in Middleburg Financial Corporation ( MBRG), sending shares of the small Virginia lender up 25%, to $18.79 in furious afternoon trading, before the shares settled down to $16.50.

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Some investors made a quick killing Thursday as they remained focused on the tape, while others may have gotten creamed, but this little bank is now looking very pricey relative to expected earnings, and the chances of a take-out at a nice premium, would appear to be slim.

Sokol's been feeling the heat after Berkshire Hathaway CEO Warren Buffet disclosed Wednesday that Sokol was loading up on shares of Lubrizol ( LZ), whilst simultaneously pitching Buffet to acquire the lubricant and chemical manufacturer. Berkshire Hataway announced the Lubrizol deal on March 15.

In an interview on CNBC early Thursday, Sokol said he had done nothing wrong while recommending Lubrizol to Buffet, and had done the same for another of his investments, which he described as a small bank.

According to InsiderScore.com, Sokol holds a 20.2% stake in Middleburg Financial.

Are investors wise to follow the herd, or are they lemmings?

Middleburg Financial lost $2.7 million, or 39 cents a share, in 2010, although the company earned $1.6 million, or 23 cents a share in the fourth with strong mortgage generation and improved credit quality.

The consensus earnings estimates among the three analysts covering Middleburg Financial polled by Thomson Reuters are the company to earn 74 cents a share in 2011 and 81 cents a share in 2012. Based on the 2012 estimate, and a $16.50 share price, the forward price-to-earnings ratio for the bank would be over 20, which is rather high, when compared to slightly better-known names.

The big four all trade for less than half of Middleburg's forward P/E. Bank of America ( BAC) is cheapest, trading for just 7.2 times the 2012 consensus earnings estimate of $1.86 a share, based on Wednesday's closing price of $13.45. Next is JPMorgan Chase ( JPM), with a forward P/E of 8.3, based on a 2012 consensus EPS estimate of $5.58 and Wednesday's closing price of $.46.45. For Citigroup ( C), the forward P/E was 8.4, based on a 2012 EPS estimate of 53 cents and Wednesday's closing price of $$4.45; and the "most expensive" among the big four was Wells Fargo ( WFC), trading for 8.9 times the consensus 2012 EPS estimate of $3.59, at Wednesday's closing price of $31.91.

Granted, investors have well-grounded concerns about the big four, with the regulatory pile-on, high legal expenses, the foreclosure mess and further risks from expected buybacks of securitized mortgages, but even a growth story like New York Community Bancorp ( NYB), trades at a forward P/E of less than half of Middleburg Financial's.

New York Community Bancorp closed at $17.16 Wednesday, trading for 11.6 times the consensus 2012 earnings estimate of $1.48 a share. On top of that, the company pays out 25 cents each quarter, for a dividend yield of 5.83%, with strong earnings being the icing on the cake.

Three analysts cover Middleburg Financial. One rates the shares a buy, one is neutral, and the third analyst recommended selling the shares, even before they popped on Thursday. The median price target for the shares is $17.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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