Opportunity in Beaten Down Stock: IMB

IndyMac Bankcorp (IMB) : On April 26th, the California mortgage lender IndyMac Bancorp said its first quarter profit fell 34% as mortgage profits took a hit from a shakeout in the subprime lending. IndyMac President Richard Wohl said he expects mortgage-banking revenue to drop at the firm's reverse mortgage unit, Financial Freedom, in the 2nd quarter, after performing well in the first quarter. "We expect net income for Financial Freedom to decline from $28 million in the first quarter of 2007 to roughly $12 million in the second quarter and then likely grow from there."

Still we like this stock for various reasons. The stock is down 34.6% from its all-time high of $48.21 set in May 2006 and has a single-digit PE ratio of only 7.27. We believe the situation regarding subprime or Alt-A lending is not of critical concern and most of the risk is already priced in the stock. The bank has a growing presence in Southern California and over the last few years could establish itself as a readily recognized name -- one reason being relatively high yield of its CD rates. Sooner or later it could also be a take-over target of big banks.

One can get into this stock at this level and hold on to it for big gains to come, while enjoying its high level of dividend (currently 6.34%). It's an intermediate to long term play. We expect it to go the level of $40 within a year's time -- may be sooner. But if we do not start taking a position now, we may miss the bus completely.

The stock closed today's session $31.44 -- up by 0.38 or 1.22% -- possibly aided by the Fed chairman Bernanke's positive comments about the effect of sub-prime lending on US economy. "We do not expect significant spillovers from the subprime market to the rest of the economy or financial system,'' Bernanke said at a conference in Chicago today.

Disclosure: We own IndyMac in our personal portfolio. You should do your own research before making any decisions. This blog or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.
Caution: Always purchase stock depending on the risk level you can take. Keep your portfolio diversified and never ever put all or most of your money in one basket. Spread your risk in various kinds of investments: real estate, fixed income, bond, stocks in various sectors. If you feel individual stocks are too risky for you, consider ETFs or mutual funds.