CCRT, FMD, SILU: Time to go Long on Tier 2 Financial Players

Compucredit Holdings Corp (NASDAQ: CCRT), The First Marblehead Corporation (NYSE: FMD), Sprott Resource Lending Corporation (AMEX: SILU) and Doral Financial Corporation (NYSE:DRL) are not the typical long term investment grade companies investors are advised to keep in their portfolios. However, decent management and market conditions could mean that investors may be overlooking the fairly significant opportunities in this space.

These companies are logical choices to go long as more and more smaller banks gets consolidated. As banks are very well regulated, it is no rocket science to figure out that the margins are also limited. As regulated entities, these banks can’t undertake the risky (and often more rewarding) businesses leaving a big market unattended. This is a wonderful opportunity for tier 2 players to get into and Compucredit Holdings Corp (NASDAQ: CCRT) may be one of them. The company is a provider of credit and related services to the financially underserved market. Since its focus has been the financially underserved market, its entry into the organized market may be sketchy. Nevertheless, it remains one of the best among the smaller credit service players to take advantage of the consolidation in the banking space. The stock currently trades at $2.42.  

The First Marblehead Corporation (NYSE: FMD) already has a bank holding subsidiary in the form of Union Federal Savings Bank. Among the positives, FMD is planning to sell the bank for some time to focus on its core business of education loans. The stock currently trades at $1.7 after appreciating 15 per cent in the last month. The jump in the stock price was primarily led by the sale of certain school contracts to Nelnet for approximately $7 million. Transactions such as these are excellent ways of unlocking shareholder value and the sale of its banking subsidiary (whenever that happens) will be another one.  

Sprott Resource Lending Corporation (AMEX: SILU) has moved in a very tight range of $1.43 - $1.98 in the last year. The business of providing bridge and mezzanine financing to precious and base metal mining companies on a profit sharing basis hasn’t been a hit among investors and probably that explains the flattish performance of the stock in the recent times.