Buy LARK

The Stock: Landmark Bancorp Inc.

The Ticker: LARK

The Trade:

Purchasing shares: 

Buy shares of LARK up to $35. Sell if the stock drops below $20. Low price target: $49. High price target: $79. For our model portfolio, we will consider current prices of $28.50 to be our entry price for the stock. Don’t invest more than 3% to 5% of your portfolio.

Trade Notes:

I have a secret love for small, regional banks. If I ever opened a hedge fund and managed money, this would be where I’d be hunting for growth.

Why?

Because regional banks tend to be small enough that big institutions stay away… Their balance sheets are structured differently than other companies, so they often don’t show up in retail investor stock screens… and their business is boring enough that they don’t attract speculators.

Anything small and confusing and local tends to keep out the riff raff, leaving room for real investors to make some money.

But until 2022, I’ve been largely avoiding my secret love simply because the profitability of regional banks depends highly on the interest rates set by the Federal Reserve Bank.

To keep this simple: When the Fed raises rates, debt in the U.S. gets more expensive. And by “expensive,” I mean you the consumer are paying more to take on a loan, and the bank is making more money from that same loan.

So what do you get when you have a bank that’s already been increasingly profitable for years…

Going into a year where the U.S. Federal Reserve Bank plans to raise interest rates at a pace not seen since 2018?

You get Landmark Bancorp (LARK). 

As I mentioned in my previous alert, some of the biggest opportunities in the market are coming from stocks that have:

  1. Good and improving fundamentals

  2. A “discount” or margin of safety between its current price and the price target implied by my proprietary valuation models

  3. A strong macroeconomic catalyst that no one seems to be paying attention to yet. 

Landmark easily hits criterion 1. Based on book value per share and assets, the company has doubled in size in the last 10 years.

At the same time, it has also become nearly twice as profitable, too. That means that as it’s growing, its growth is accelerating. And as it has accelerated, it has paid investors a bigger and bigger dividend.

Also as a result of this growth, the ratio of Landmark’s price compared to how much it earns is drastically below historical averages. It’s the same story if you run a model projecting out its earnings or cash flow growth into the future, based on its recent pace of growth.

That means that we’re seeing Landmark meet criterion 2 in a big way.

And finally, we have the macro catalyst I mentioned above: The Fed raising rates in 2022.

Long story short, Landmark has all the hallmarks of a small stock you want to buy and hold as long as you can, so long as the fundamental story doesn’t change.

Company Info:

Landmark Bancorp is the bank holding company for Landmark National Bank, which is dedicated to providing quality financial and banking services. The bank is principally engaged in the business of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to originate one-to-four family residential real estate, construction and land, commercial real estate, commercial, agriculture, municipal and consumer loans. In addition, it also invests in certain investment and mortgage-related securities using deposits and other borrowings as funding sources. Its primary deposit gathering and lending markets are geographically diversified with locations in central, eastern, southeast, and southwest Kansas.

Key Stats:

Market Cap $118,248,800

HQ United States

Sector Financial Services

Industry Banks - Regional

Exchange NASDAQ

Relevant Company Financials:

LARK caught my attention due to the steady increase of its profit margin in recent years, as well as strong capital efficiency. Additionally, its revenue has been increasing sustainably even before it looks likely to benefit from increased interest rates.

Sean "Finance Daddy" MacIntyre

The Finance Daddy, a.k.a Sean MacIntyre, is a seasoned investment analyst, entrepreneur, and marketing consultant to some top dogs in the financial industry. Since 2015, he’s served as acting private portfolio manager and head equity analyst for a multimillion-dollar international investment trust. Sean’s work reaches over 22,000 readers. To learn more about him, read his bio right here.

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