My podcast interview with Enrique Abeyta; My expert friend's favorite mid- and small-cap bank stocks; Update from Israel

1) As I mentioned in yesterday's e-mail, I was honored to be the first guest on the new podcast hosted my old friend and former colleague, Enrique Abeyta, who just launched a new firm called HX Research.

In it, we talked about our outlook for the markets this year, the three keys to investing success, and many other topics. You can check it out here.

As background, late last year, Empire Financial Research merged its operations with Stansberry Research, where I'm now the lead editor of the flagship Stansberry's Investment Advisory newsletter. Meanwhile, Enrique took the opportunity to create HX Research.

If you would like to receive his free investing daily e-mail, simply enter your e-mail address here.

And he has a special offer for former Empire subscribers – so if you're one, you can e-mail him by clicking here.

Here's a picture of us visiting the Virgin Galactic (SPCE) spaceport – a stock we recommended at Empire at $10.20 per share shortly before it soared (we recommended partial sales after it doubled and then tripled, with our final exit recommendation at $50 per share, just before it cratered – one reader made $10 million on this one idea!):

2) Picking up where I left off in yesterday's e-mail, I'm continuing my series on the banking sector...

Over the past week, I've been sharing insights on the sector from my friend who's the smartest bank analyst I know. His long-short hedge fund, since inception in 2008, has returned 407%... That's 10 times the 41% return of the most appropriate benchmark, the S&P 500 regional bank index.

Despite my friend's overall bearishness toward the sector, he does own one large-cap bank, Wells Fargo (WFC), as well as some idiosyncratic "special situation" small-cap and even microcap bank stocks.

Before I share them, first he e-mailed me a slight correction to what I wrote yesterday:

Wells Fargo did, in fact, participate in the Paycheck Protection Program ("PPP"), but was slow to do so – and it was actually quite a negative event for them in that their customers (especially smaller ones) who called when the PPP was first launched were met with hesitation.

Community banks really benefited from Wells Fargo dropping the ball on this.

Eventually Wells Fargo came around and did offer PPP, but at a much smaller scale than one would have expected from a bank that serviced small business customers.

3) Turning to my friend's favorite off-the-beaten-track bank stocks...

He likes Eastern Bankshares (EBC), which he says is "the jewel of the Boston banking market" – one of the most attractive in the country because of the area's many large educational institutions as well as health care and tech companies.

For this reason, the premiums that bank acquirors have paid have historically been among the highest in the country in the Boston market.

EBC isn't tiny, with a $2.3 billion market cap – and will soon be around $3 billion pro forma for its recent acquisition of Cambridge Trust. My friend wasn't a fan of the deal, as the younger CEO of Cambridge Trust is soon to replace EBC's CEO, which means that it's less likely to be bought out in the near term. In addition, he thought EBC overpaid, but with rates moving down, he says the deal looks better.

But he also says the valuation is right – it trades at only 1.1 times tangible book and 10 times earnings – and it could soon be added to the S&P 600 Index.

4) My friend is also playing an unusual theme based on a government program, the Emergency Capital Investment Program ("ECIP"). This is run by the U.S. Treasury Department and is giving banks money in the form of preferred equity that's perpetual, charging zero percent interest, as long as the bank lends in designated low-income areas.

Regardless of whether you think this is good public policy, my friend says it's an incredibly attractive source of capital for banks that can take advantage...

His favorite was to play this is Ponce Financial (PDLB), which operates in the Bronx. It was sort of a ho-hum bank, with $266 million of common equity, but then it applied for the maximum from the Treasury Department, which handed it $225 million!

My friend's read is that this is a tiny program for the Treasury, which will likely wind it down and either straight out forgive the equity or let the banks buy them out for fair market value, which might be as low at 10 cents on the dollar.

Ponce's tangible book value today is $11, and the stock closed yesterday at $8.86, so it's already trading at for a very low multiple of 0.8 times.

But if you mark the $225 million loan at $0.10, tangible book value instantly jumps toward $20 per share!

As a former mutual bank, regulations stipulate a three-year moratorium before Ponce can sell itself. But once this expires in January 2025, my friend thinks it will quickly be snapped up (especially since the board is "ancient").

He also thinks this stock could easily trade to $15 per share once investors figure out the windfall Ponce is likely to receive from ECIP.

Tomorrow I'll cover the final two stock ideas he shared with me... Stay tuned!

5) After flying to Israel on Sunday night, I've had a busy past two days...

I spent some time with a group of Jewish-American philanthropists, touring the country and meeting all sorts of fascinating people, including:

• The first lady, Michal Herzog
• A senior Israeli defense department official
• A soldier who lost his leg after being hit with a rocket-propelled grenade in Gaza
• A survivor of the October 7 attacks who was burned on 60% of her body and was in a coma for two months
• A former hostage
• Some families of current hostages

We also visited the site of the Nova Music Festival and two kibbutzim where Hamas terrorists massacred/kidnapped 400 Jews.

As you can imagine, it was a very intense, emotional two days.

Now, in case you're wondering why I care about this...

In additional to simply being human, my wife and three daughters are Jewish (I told her on our first date in 1990 that we could raise our kids Jewish – seriously!), we're longtime members of Central Synagogue in Manhattan, and more than half of my closest friends are Jewish.

And keep in mind that I do my best to keep my politics out of my investing e-mails, so please understand that I'm not expressing any opinions here about what led to the Hamas attack, whether Israel's response has been proportionate, etc.

I am simply documenting indisputable facts: Members of Hamas committed a well-planned, brutal act of terrorism that resulted in the greatest single-day loss of Jewish lives since the Holocaust (approximately 1,200). Hamas also continues to hold more than 130 hostages in Gaza today.

I don't have the time or mental energy right now to do the past two emotional days justice, so for now I'll simply share a few photos from the first two places we visited...

The Nova Music Festival, only a short distance from Gaza, began on October 6. The theme (ironically) was celebrating peace and harmony. At 6:30 a.m. on October 7, hundreds of Hamas terrorists descended on the site and began a violent rampage as the festival attendees fled.

By the time the carnage was over, 364 Israelis had been murdered and many more injured, with 40 others taken back to Gaza as hostages.

Here's a picture of the site today, where there are sticks in the ground – each with a photo of one of the victims:

Here's a mural with pictures of every victim:

We then drove to a nearby kibbutz, Kfar Aza, which is even closer to Gaza – we could see it clearly in a distance and regularly heard the firing of artillery and machine guns from the fighting taking place.

On October 7, Hamas terrorists invaded this small community of roughly 800 people, engaging in a similar rampage as the music festival – shooting, burning, and kidnapping. They murdered 65 Jews and took 20 more as hostages.

Here's a picture of a street with small homes on either side, every one of which was shot up and/or torched:

I will share more photos and thoughts as I find time.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.