Our recent Western Banks Report points to low investors interest in community banks but Tim Coffey of FIG Partners, LLC in our recent Western Banks roundtable points to some companies to be positive on:

“We like Pacific Continental out of Oregon, we like American River Bankshares out of Sacramento and we like Bank of Marin. These are not heavily discounted names, these are not trading below tangible book, but they all have a pretax pre-provision ROA greater than 2%, which is kind of the defining line in this market right now, about whether or not a bank has sufficient earnings power to build capital and get prepared for what they might not see right now.”

Community bank investing for the long term remains attractive but in the near term we have to work through the poor economic environment and further credit quality issues, particularly in the CRE and C&I segments of bank loan portfolios. Banks that survive these problems will have plenty of opportunities to pick up market share in terms of deposits, staff and business relationships from troubled banks. The survivors will be the most transaction-based banks that are making the transition from real estate dependency to a more relationship-based focus. The banks are very cheap right now but investors should make sure that they are rightsizing their cost structure and adding low-cost deposits.

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Our other special focus this week is on Life Science Tools. As part of our interview with analyst Tycho Peterson of JPMorgan’s healthcare group, we talked a little bit about what the most significant technological advances going on in this space. Here’s what he had to say:

Mr. Peterson: The biggest one is the dramatic reduction in the cost of obtaining sequence information. This is the standard elasticity curve. It was not that long ago, going back to 1999-2000 when we had the human genome project that it was $3 billion to sequence the first genomes. Now, we are at the point where for $50,000 you can get your genome sequenced and there is a fairly near-term horizon to get to the $1,000 genome in the next couple of years. What that is going to do is open up sequencing to whole new markets…At $1,000 dollars, however, I do not see any reason why most people would not get sequenced, why newborns wouldn’t get sequenced, and that would become part of the medical record, why cancer patients wouldn’t have a tumor sequenced because the tumor is evolving, and you can sequence the tumor every six to twelve months and based on that information, develop a highly-catered drug regimen.

For the complete Life Sciences report, including the full interview with Mr. Peterson, as well as interviews with top CEOS in the space, click here. 

Jeffrey Peek, CIT’s CIT (NYSE) CEO since 2003 appears to have entered a status similar to many of the financial CEOs that were forced out during the financial crisis over the last year and a half, e.g., Stanley O’Neal of Merrill, Sir Fred Goodwin, Royal Bank of Scotland, Martin Sullivan, AIG …  CIT has been in free fall of late and is looking to the government for help.  It is unlikely Peek will remain as CEO after the company’s crisis manages to come under control.  According to a story by Paul Tharp in the New York Post,

The White House is “in advanced talks” trying to extinguish a sudden financial wildfire that could swallow CIT Group, the financial firm that bankrolls the nation’s small businesses.

… The company, which reported more than $3 billion of losses in the past eight quarters, said it hired Skadden, Arps as an adviser. Skadden is known for its work in mergers and acquisitions and bankruptcies.

CIT warned yesterday in internal documents that it’s in danger of running out of cash unless it can get a second round of federal bailout help like that of Wall Street’s banks and other cash-strapped financial firms.

Peek can be expected after the crisis is handled to find himself a lightning rod for the company’s risky business decisions.  Keep a close eye on how Peek handles the current crisis and how he is ultimately portrayed by institutional investors and the government.  In a story by Ari Levy and Linda Shen of Bloomberg they examine the difficulties Peek and CIT are facing.  The writers quote Sean Egan, president of Egan-Jones Ratings Co. in Haverford Pennsylvania,

“You could make a cogent argument that senior management didn’t have a good grasp of the financial storm that was on the horizon,” … “CIT has been through a number of near-death experiences. This time they cut it too close.”

The Bloomberg reporters go on to say,

… On Peek’s watch, the shares soared to a record $61.59 in February 2007 before plunging 98 percent as the company reported eight straight money-losing quarters. CIT’s debt rating was cut by Standard & Poor’s yesterday to seven levels below investment grade, as the ratings firm cited company requests to draw down on credit lines.

Moody’s also slashed its rating yesterday, to B3 from Ba2, or six levels below investment grade, because of “inadequate progress” toward improving liquidity. CIT, which lends to 950,000 businesses, warned that a collapse would put manufacturing and retail clients at risk.

It is only a matter of time for Peek.

For more:

New York Times (update July 16)

Speaking with analyst Joseph Gladue of B. Riley & Co. this week- as part of our special focus on Banks- he gave us a pretty bleak picture of the space. That being said, he has also had two recommendations for banks to watch in this space:

1.  Center Financial (CLFC): ”They’ve maintained fairly good asset quality throughout most of this declining economy, although they’ve had some increases in NPAs the last quarter or two. They’ve got very strong management, strong capital levels, very strong reserves. They have built their reserves to loans up to almost 3%, and their tangible common ratio is 7.5%. I think Center Financial is a pretty good bank that’s trading at, as of yesterday, around 30% of tangible book value.”
2. Central Pacific Financial (CPF): ”I actually just initiated coverage on  yesterday out of Hawaii on them with a buy rating. That’s a bank that had expanded to the mainland out of its core Hawaii market in order to reduce its concentration in Hawaii and diversify its risk. Unfortunately they started that around 2003, moving to the mainland. They opened some loan production offices in California and Washington and they ended up getting hurt by residential construction loans, as did many a bank in California. They sold off a big chunk of the construction loans in the second quarter of last year, and they’ve written off or reserved for most of the rest.”

For the complete Western Banks report, including the full interview with Mr. Gladue, a roundtable panel, and interviews with top CEOs in the space, click here. 

Our featured company for this week Burzynski Research Institute(BZYR) can be read in full here.

Burzynski Research Institute is a biopharmaceutical company which is developing cancer treatment based on genomic principles. We are in the process of obtaining FDA approval for marketing four antineoplaston (ANP) drugs. Two of these antineoplastons – Atengenal® and Astugenal®, are administered intravenously, and the other two -  Cengenal® and Fengenal® are administered orally in capsules.

We talked with Chairman and Founder Stanislaw R. Burzynski M.D., Ph.D. who spoke in great detail about the company and current FDA Trials;

Dr. Burzynski  “…since the beginning of this year, we had three announcements regarding our clinical trials. We began with the announcement about the treatment of inoperable brainstem glioma. These are very difficult tumors to treat, perhaps the most difficult in the entire field of oncology. They cannot be operated because they are in the brainstem, and these are the deadly tumors. If you use radiation therapy, which is the only treatment available, over 90% of patients will die during the first two years. We did clinical trials, which were quite large. We had 94 evaluable patients, and our survival for newly diagnosed patients at two years is approximately 50%, and at five years it’s about 30%. We have a number of patients who are now surviving over ten years, and our longest survival is over 22 years. So if somebody is surviving five years, then such patients are considered cured. That’s the first announcement, which we made at the beginning of the year because we received FDA permission to proceed with Phase III trials for brainstem glioma. ”

Liberum continues to see overall declines in executive turnover across key categories.  In our latest research, the first half of 2009 saw declines in CEO turnover of 35%, CFO turnover by 42% and C-level turnover of 36% respectively when compared with the same half-year period in 2008. The declines were similar for the second quarter when examined on a quarterly basis.  Below is a graphical representation of Liberum’s most recent research on CEO turnover for the first six months of 2005 – 2009.  Liberum expects executive turnover to begin to slowly increase as we move into the Fall.  Summer turnover is expected to remain slow despite the fact that overallunemployment remains extremely high. For detailed information on the turnover figures contact Liberum’s Research Director, Richard Jacovitz.

The portfolio managers at Broadview Advisors couldn’t stop saying good things about the company Sapient (SAPE)- a consulting company, interactive ad agency with a franchise in trading and risk management.

According to the folks at Broadview, Sapient has been “somewhat misunderstood by the Street in that it had an issue with options backdating that resulted in management turnover. The existing founder of the company stepped aside and an unknown management team was internally promoted to handle the challenging accounting restatement, as well as improve margins at the company. The Street completely wrote off Sapient at that point.”

Here’s what portfolio manager Aaron Garcia had to say about Sapient’s new management:

Mr. Garcia: We went out and visited with the new management team and what we found was that even though Sapient was viewed by many analysts as an IT consulting company, they had actually shifted much of their business into interactive advertising and trading and risk management. They had de-emphasized traditional IT consulting, SAP implementation, things of that nature. They bought a small, interactive ad agency, gave it some resources so it was able to grow in a very fast growing industry and tied in a very strong Web development franchise that they had internally developed in order to create a full-service advertising agency for online advertising…We like this shift because these new services are higher margin and less commoditized, and the strength of these businesses has helped the management improve their operations and grow their operating margins from the low-single digits to the low-double digits and we feel they can go higher. Yet most of the analysts on the Street are focused on the IT consulting piece in which Sapient is a relatively minor player.

For the complete Investing Strategies report, including the full interview with Broadview Advisors, as well as a variety of other portfolio managers, click here.

Recently as part of our Gold Industry Report Andrew Mikitchook of Thomas Weisel Partners Canada Inc. gave us his top three picks for the Gold Industry.

To read those picks follow us on Twitter.

Speaking with Analyst James Lucas about Industrial Equipment recently, he gave us his five companies to look at in this space. The industrial equipment space may be doing poorly this year, but be sure to look to these companies to see just when it’ll turn around:

Mr. Lucas: There are a number of different data points to track. Companies like Grainger (GWW) and Fastenal (FAST) in the distribution space provide their sales data and watching those month-to-month trends gives an indication of what’s going on because they tend to be MRO-related products, so it’s more of the day-to-day handling within a business. Kennametal (KMT) in the machine tools space, Illinois Tool Works (ITW), which tends to be little bit more consumer and commercial related, and Emerson (EMR), which gives you some network power, technology, and is very heavy on the process oil and gas side, also give their monthly numbers. When you take those five, it gives you a pretty good cross-section of the overall economy to get an idea of what’s going on out there.

For the full Industrial Equipment report, including the full interview with Mr. Lucas, as well as interviews with top CEOs in this space, click here.

In our recent Industrial Equipment Report we spoke with Daniel Whang of B. Riley & Co., Inc. who was very high on Regal-Beloit:

“Regal-Beloit (RBC).is a leading manufacturer of electric motors, motion control products, and generators. They have a strong brand. One of the things that I like about them is that they have significant exposure to early cycle demand. Roughly about 40% of their revenue is coming from resi­dential, what they call HVAC or Heating, Ventilation, and Air- Conditioning motors. As the economy starts to bottom out and show improvement, I think they could be one of the early beneficiaries of that. In the industry, they have a reputation of producing high qual­ity products. They have a management team with a good track re­cord. In the current environment, the company is reducing their costs while they continue to invest in the business.”

Mr. Whang also recommends another Industrial Equipment company but you need to read the full interview for that information which is available here .

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