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Looking to U.S. small-caps for long-term growth

Tags: U.S. Banks

The U.S small-cap Russell 2000 index hit record-high territory in 2013, gaining 37 percent to 1,163.64. But small-cap fund managers like Teton Advisors believe there is still significant value in the space if investors know where to look.

Nicholas Galluccio, President and CEO at Rye, New York based Teton, manages approximately $2 billion US in assets. He tells BNN he’s focused on regional banks and companies that supply the aerospace industry.

SMALL BANKS, BIG POTENTIAL

U.S. regional banks as a group tracked the increase in the Russell 2000 index, but Galluccio says several stocks in the sector are significantly undervalued.

“Amidst the market climb we are finding banks at 1.5-times tangible book value that are based in the Northeastern U.S. And if you go out to Texas you’ll pay more but you’re going to get a higher growth rate.”

  • Viewpoint Financial (VPFG-Q): This Texas-based bank has $5 billion in assets and a market cap of approximately $1 billion. Galluccio says Viewpoint trades at 1.6-times tangible book value after a recent acquisition that positioned the bank as a major player in the Dallas area.
  • Rockville Financial (RCKB-Q): Based in Hartford, Connecticut, Rockville just completed a merger of equals that will leave it with a $600 million market cap and a dominant market position in New England.

With 8000 regional banks in the U.S., Galluccio believes the recent wave of mergers and acquisitions will continue, rationalizing the banking industry and supporting earnings growth.

THREE AEROSPACE OPPORTUNITIES

Investors usually look to Boeing, Bombardier or other large-cap players for aerospace exposure, but Galluccio owns three small manufacturers that supply the industry heavyweights.

  • Hexcel (HXL-N)
  • Woodward (WWD-Q)
  • Carpenter Technology (CRS-N)

“Boeing and Airbus combined have 2000 planes they’re going to deliver over the next 20 years to the global airline industry as well as leasing companies,” Galluccio tells BNN. “These three companies stand to benefit as suppliers to this food chain.”

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