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A Small-Cap Bank with a Lot of Promise

Bob Howard is the founder and long-time editor of the newsletter, Positive Patterns, and a contributor to Wall Street’s Best Investments and Wall Street’s Best Dividend Stocks. Bob specializes in discovering solid undervalued stocks with attractive trading patterns, many of which pay dividends. I met Bob almost 20 years ago, when we were both contributors to the Dick Davis Digest publications, and have always appreciated his excellent analytical skills and successful track record.

Bob Howard recommends this small-cap bank stock for its potential to deliver strong capital gains along with quarterly dividend income.

“South State Corporation (SSB) is a South Carolina-based bank with around 125+ branches, of which some 85% are located in its home state. The bank also has a decent number of locations in northeast Georgia and a few North Carolina branches near the South Carolina border.

SSB is a solid bank with an outstanding financial profile, and more importantly, an exciting future for growth. Unlike 95% of the banks that got caught ‘short’ in the 2008 mess, South State came through the debacle in fine shape; in fact, the bank did well enough to brag about it.

Passed the Bank Stress Test with Flying Colors

SSB did not have to retreat, fire lots of people, sell off assets, or change how it operates. It is one of the few banks that passed the ultimate stress test—the years of 2008-2009—and that is a lot better than any ‘simulated’ stress test.

The media and the street spend an inordinate amount of time talking about the banks that failed the stress test, and Wall Street hypes these stocks constantly. And the stocks go nowhere.

Billions of shares of Citigroup (C) and Bank of America (BAC) are traded every year, and the stocks have little to show for it. And the banks still have lots of troubles. Meanwhile, we have really good banks—those that did well during the smash, that didn’t have to retreat, and that are still growing. Banks like First Citizens Bancshares (FCNCA), Great Southern Bancorp (GSBC), Southern First Bancshares (SFST), Auburn National Bancorporation (AUBN), Bank of Hawaii (BOH) and SSB, among others, and the “Street” shuns them!

You won’t find them on the recommended lists of the “Street” names, but you will find these stocks appearing on the new highs list. Take a look for yourself—I’ve bet you’ve never—or rarely—heard their names bandied about by analysts and reporters.

Wall Street and the media virtually ignore these stocks. Meanwhile, they have been good places to make money and I still think there is time left to buy these stocks right now. The next three to five years could be very good ones for the no-name banks.

SSB has a market cap of about $1.7 billion and a sliver of debt—around $325 million net. Compare that to the bloated Citigroup, with a market cap of $133 billion and a whopping $500 billion in net debt (!!!). Which one has the better growth profile? Who’s going to like higher rates better? Heavily-indebted Citigroup or lightly-indebted South State? That’s an easy answer!

And after all, SSB is a true bank. It doesn’t live and die on trading volume, investment deals, and foreign loans, as so many big banks do. SSB is a just a boring, plain old-fashioned bank, and that is just what you want.

A True Growth Bank at a Reasonable Price

SSB stock has performed much better than most banks stocks in the last 20 years.

South State went public almost 20 years ago at the $14 area. In the next 10 years, the shares climbed to $39. Then, and during the crash of 2008, they dropped very briefly to the $21 area, and then quickly bounced back into the $30 area. By November of 2013, the stock rose to new all-time highs in the $60—almost 50% above the previous highs.

You’ll note that shares of neither Citigroup nor Bank of America performed as well!

In early 2015, South State shares moved out to another all-time high of $78. Since then, the stock has backed off and corrected a bit. Most recently, it has made a good comeback. I expect much higher earnings ahead, and SSB to reach new all-time highs once again.

I would remind you while most big banks are well below their all-time highs (C, BAC, etc.), SSB achieved its previous high of $39, surged well past that, and now is in much higher territory.

That is because this is a true growth bank. The big banks will have trouble finding growth and frankly, they are more likely to be retreating, not growing. At 1.6 times book and a P/E of about 17, I find this bank stock very buyable at these levels. I look for much higher earnings ahead, and I think this should make for a very good 3- to 5-year trade.

I would buy shares of South State up to $75.”

Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887- 4486, June 6, 2016 (please note, Bob has a new email address:

Wall Street’s Best Editor’s Note: SSB’s dividend yield is 1.67%, and the dividend is paid quarterly. Please note that the shares of SSB trade on light volume, and this is a small-cap stock, so please don’t chase the shares; buy prudently.

Happy investing,

Nancy Zambell
Editor, Wall Street’s Best Investments and Wall Street’s Best Dividend Stocks


Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. She has created and/or written numerous investment publications, including UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. Nancy has worked with for many years as an editor and interviewer for their on-site video studios.