Friday, June 12, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:       The problem is that we no longer have a good speculative bank to talk about on Mad Money... one that allows us to play the bottom in housing, and the recovery of the bank business... with more risk and more room for upside, like Bank of America when it was trading at $3 and $4... and no one was really certain about its future...

Yep, we need a replacement... not just because this is "Speculation Friday"... but because the banks be the best area to speculate in... given the ability of bank stocks to rocket higher, once the underlying companies take the worst-case scenario off the table...

And I think that I've found the bank that's just that... and, in the process, primed its stock to really shoot higher... This is a bank that, frankly, I know I didn't really believe in... one that, until very recently, I considered uninvestible...

The bank's name?... Huntington Bancshares Inc. (HBAN)... A $4 and change regional bank with over 600 branches in such states as Indiana, Kentucky, Michigan, Ohio, Pennsylvania and West Virginia.

So what's the story here with HBAN?...

Earlier this week, Goldman Sachs released a terrific report on the banks. They did their own simulated stress tests on regional banks like Huntington, which were too small to really get stress-tested by the government. And what they found caused them to upgrade the stock from a "sell" to a "hold"...

A lot of things have started going right at Huntington lately, but the analyst at Goldman only really cared about one thing... the fact that the really negative thesis, the reason to dislike Huntington, was no longer relevant. It was all about the fact that the bank's losses required it to raise capital in the open market, which would then send the earnings estimates lower... and, when the estimates come down, so does the share price.

But the capital raise happened... Huntington completed its secondary offering... the price last week, at $3.60. And it brought in $324 million... a deal that made money for everyone involved by the way... And that's just the latest stage of a plan to ultimately raise $700 million so far this year.

How come this matters so much?... Why did it prompt Goldman to upgrade Huntington from a "sell" to a "hold"... and me to recommend it as the next speculative bank stock?...

First of all, there was always the danger that it might not be able to raise the money... I personally didn't think this bank could pull it off... Instead, I thought it would end up as one of the casualties of the new era of numerous bank failures. But, with the secondary now behind it, Huntington's tangible common equity ratio - the most stringent measure of a bank's regulatory capital and its ability to absorb losses - is up from 4.7% to 6.1%. That's even better than its peers at 5.6%.

But what weighed on the stock even more heavily than the question of whether or not it would even be able to raise money was the simple fact that, as long as it hadn't, everyone who thought about Huntington would only focus on one thing: the fact that the bank would have to raise capital at some point in the future in order to handle its losses. So why would you buy it ahead of the secondary?...

And then it did it, just like it did the secondary... diluted the value of the shares... but that was the overhang, the overpowering issue... and, now that the capital raise is done, and the analysts who rate Huntington as well as investors can now evaluate the stock based on its potential earnings... they like what they see.

We used to say at the hedge fund... the big, bad event has now happened; the worst-case scenario is now off the table.

So now people can go back to analyzing the stock based on its earnings... and that was essentially the premise of the Goldman upgrade... That, and Huntington's potential earnings are frankly pretty decent... definitely enough to sustain a much higher stock price.

This speculative banking play isn't just about a capital raise and a good piece of research... The truth is, Huntington has been improving ever since it hired Stephen Steinour as its new CEO, January 14th.

Steinour has taken a number of steps that have really improved the company... a $100 million in cost cuts, a huge dividend cut to preserve capital... Remember, this a $4 and change speculative stock... we don't own it for the yield...

This also is a speculative bank that has a ton of insider buying... This is what I want you to focus on...

Six insiders have started buying shares, indicating they think their stock is too cheap, and don't think their bank is going under. The new CEO got in on the action. He bought 555,555 shares on that secondary at $3.60... That's right. He bought more than a half million shares on the secondary. Five directors bought 59,000 shares with the same secondary. Before that, Steinour had already bought 300,000 shares on April 22nd at $3.40. This guy... just think about this... the CEO has now bought 855,555 shares since he took over in January. 14 insiders have bought 172,576 shares on April 22nd as well, between $3.24 and $3.85.

I've got to tell you... This is monumental insider buying. This is crying out for you to buy this stock as a speculative play.

Here's the bottom line...

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*Note:  Bank of America is a key holding in Jim Cramer's Charitable Trust Portfolio, which you can see here>. 

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