Tuesday, August 23, 2005

Friedman Billings Ramsey: Stock Pick of the Day

James Cramer recently made a bullish call on FBR, a bank I used to own for clients.

In 2004 I was convinced FBR would be bought out by a larger bank looking to roll up a boutique IB.

I still do.

But Cramer keenly points out that FBR's mistake was breaking into the subprime lending business at the wrong time (Fed cycle).

Catablast! Media Group nevertheless thinks Friedman Billings Ramsey is cheap at these levels and still acquisiton prone (Buy recommendation with a $16-$18 price target).

Just look at the number of boutiques that have been swallowed up over the last 18 months -- I have the Soundview/Schwaab and Lehman Bros/Neuberger Berman deals in mind, as well as the Alex.Brown one from many years back.

$2 Bilion market cap on the table for 7 X trailing 12 month earnings.

Something's got to happen with FBR's share price.

The downside is already factored into the price of the stock, including the interest rate increase the Fed has on tap for us.

FBR's REIT business may suffer as rates climb -- but they can offset that with their strong M/A & IPO activity.

There is still that massive dividend FBR pays out, too.

It is shame how scarce a following FBR has on Wall Street -- only a handful of analysts follow it.

Maybe no one wants to get too close to a company roiling from a disastrous managment change that sent the stock from $28 to $12 and is now cheap.

Real cheap.

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