Question:
I have shares of Fidelity Southern Corp. and State Bank Financial Corp. I was thinking of selling these in favor of a bigger regional banking like SunTrust. What do you think of this move?
Answer:
Both Fidelity Southern Corp. (NASDAQ: LION) and State Bank Financial Corp. (NASDAQ: STBZ) are regional banks, with relatively small market caps between $350-$550 million. With such small market capitalization, there is less analyst research available. Liquidity may also be a potential problem. As an investor, you want to be able to buy and sell a stock, without sacrificing the price. Small banks may not be widely held. A majority of shares may be held by directors of the bank. If one were to sell his shares, the price may move several dollars.
Both of these banks are more expensive than SunTrust Banks, Inc. (NYSE STI) on a price-to-book basis. SunTrust has done a good job disposing of their bad debt. It is a medium-sized bank with a market cap of nearly $19 billion. We think this would be a good move to sell both Fidelity Southern and State Bank and buy SunTrust, as SunTrust has a more diverse business line.
Question:
I was on a Delta flight recently and really enjoyed the in-flight Wi-Fi connectivity. So naturally, I looked up GoGo. Inc. for an investment. It’s pretty close to its high, but there are so many stocks in the market. What is your outlook for GoGo?
Answer:
GoGo, Inc. (NASDAQ: GOGO) provides in-flight wireless internet connectivity on commercial airlines; currently, we believe this is a speculative investment. GoGo currently has 80% of the market share. The company also sells equipment for in-flight internet, but has competition from satellite companies that offer a faster connectivity experience. The company is also losing money. We do not recommend investing in companies that do not make money. Shares are currently trading at 25 times sales.
Question:
I’ve been investing for maybe three years now. I get dollar cost averaging. Can you explain the other types of investing, i.e., buying on a margin, short-sell, etc?
Answer:
When you trade on a margin, your brokerage firm provides you a line of credit of up to 50%-60% of your account balance to buy stocks. If you have $1,000,000 in the account, you may have $500,000 more to purchase shares. In theory, you should then sell the investment, when it increases in value. You then pay the broker the amount you borrowed, plus interest, and keep your profit. For example, if you are charged 3% on the margin, and the investment is up 25%, you made a very hefty profit. Likewise, trading on a margin also magnifies the loss. If your investments go down, your broker may issue a margin call, A margin call requires you to deposit additional money, so that your account is on par with the minimum maintenance value. If you do not make a deposit, the broker may sell some of your assets.
When you short sell a stock, you are borrowing shares in hopes of buying them back at a lower price. For example, you borrow 100 shares of stock, and sell them at $88 per share. Essentially, this is selling stock you do not own. The stock price then falls, and you buy the shares back at $40 each. You then give the stock back to your broker, and you keep the profit.
We do not advocate either of these trading methods, as you are exposed to significant risk. We feel it is difficult enough to predict the market in the long run much less predict the short-term movements with enough accuracy to profit.
At Henssler Financial we believe you should Live Ready, and that includes understanding how your investment holdings are working for you. If you have questions regarding your financial situation the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
