Could a Bank, Up Almost 700% Since the Great Recession, Still Be a Buy?

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"Buy low, sell high." So goes the old adage for how to make money in the stock market. But what if there was another way? What if we could "buy high, and buy higher"?

I know that sounds ridiculous, but this past week, user aryan89 posted a brilliant message on the Fool's premium boards. In it, he said:

History tells us that rather than trying to time the market and buy low, sell high, it is better to stick to your investing philosophies. If the reasons you invested into a company are still intact, rather than asking "Should I sell and take profits?", the correct question would be to ask, "Should I buy more?" 

With this in mind, as I look for five potential stocks to invest my real money in during the month of August, I'm looking for companies and stocks that are firing on all cylinders, and unabashedly buying in even though a stock has had strong price appreciation.

Today, I'm investigating BofI Holdings otherwise known as the Bank of Internet USA, which is spanking the S&P 500 by over 200 percentage points over the past two years.

BOFI Total Return Price Chart

BOFI Total Return Price data by YCharts.

Bank of what?
If you haven't heard of the Bank of Internet USA, it's worth checking out. The business model is ridiculously simple, yet effective at the same time.

As the name insinuates, this bank gets its competitive advantage by conducting all of its business online. That means that the heavy costs of brick-and-mortar branches, and the hassle of paper statements, are completely eliminated. With these costs eliminated, the bank can turn around and offer better rates to both depositors and those seeking loans.

Historically, BofI has focused solely on consumer deposits coming in, and home equity and auto loans going out. Since the Great Recession, both depositors and borrowers have begun to catch on to this branchless bank.







Total Deposits






Net Loans






Net Income






Source: SEC filings. All numbers in millions. Company's fiscal year ends on June 30.

To put all of those numbers in perspective, the amount of money folks have been keeping in BofI has increased by 30% per year, the total value of the loans being made has increased by 29% per year, and net income has jumped 63% per year. And it does all of this while making very safe, conservative loans, almost exclusively for residential borrowers.

Why is it so popular? For borrowers, a 30-year fixed rate mortgage for a $250,000 home with 20% down in Chicago will run about 4%. A similar mortgage rate from Wells Fargo and Citigroup  would come in at about 4.25%, JPMorgan Chase offers a 4.375% rate, and Bank of America would charge a 4.625% rate.

And when it comes to depositors, these days it's hard to beat BofI's 1.35% 5-Year CD. For comparison's sake, Wells Fargo  and Citi both offer 0.5% yields, while Bank of America  and JPMorgan  give clients a 0.35% yield.

It's actually not so hard to see, then, why BofI stock has been doing so well since the Great Recession began in 2008, while the too-big-to-fail banks have collectively seen their stocks go down over the same time frame.

Still time to buy?
Of course, it makes sense to wonder if you've already missed out with BofI. The stock is up almost 700% since the Great Recession began, it doesn't offer a dividend, and deposit and loan growth rates will likely start slowing soon.

And yet, I still think BofI stock has room to grow. It currently trades for 18 times earnings. While that's a little heady, analysts -- who have regularly underestimated BofI's earnings power -- believe the bank will grow earnings by about 18% between 2013 and 2014.

That would make the stock appear fairly valued right now, but there are two more catalysts working in its favor. The first is the fact that the bank has recently opened business banking group to attract more deposits, and second is the fact that I believe word-of-mouth praise will snowball as time goes on.

As long as the bank continues to make quality, conservative loans, there's a lot of potential in owning this bank's stock.  And yet, our banking experts don't think BofI represents "The One Banking Stock Buffett Wishes He Could Buy." Click to get a free report detailing exactly why he can't buy one attractive company in the financial sector. Click here to keep reading. 

The article Could a Bank, Up Almost 700% Since the Great Recession, Still Be a Buy? originally appeared on

Fool contributor Brian Stoffel has no position in any stocks mentioned. The Motley Fool recommends Bank of America, BofI Holding, and Wells Fargo. The Motley Fool owns shares of Bank of America, BofI Holding, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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