For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"For more conservative investors, my favorite idea for 2008 is First Horizon National Corp. (NYSE: FHN), the Tennessee-based holding company for First Tennessee Bank," says Keith Fitz-Gerald, editor of Money Morning.
"Its banks feature all the offerings you might expect from a good regional bank: Savings, checking, mortgages, investment banking, and brokerage services. It's not exactly an innovative idea -- minimize risks and maximize profits.
"But let's face it, it's a tried-and-true strategy that most US banks have abandoned as they chase after the (allegedly) big profits that subprime-backed debt, leveraged buyouts and other similarly esoteric investments appeared to promise.
"Yes, FHN really over-extended itself in the credit markets and recently announced a loss of $14.2 million. More losses may be coming. And its ultra-high dividend yield off 7.93% may be in jeopardy. Nonetheless, we think the stock's beating was overdone.
"Its moves began back in September with the successful sale of all 34 of its First Horizon Bank branches for an undisclosed price. Additionally, FHN plans to cut up to 50% of its mortgage sales force, reduce support staff and shutter underperforming mortgage branches.
"This strategy positions it as a stable company poised for improving financial performance. The bank's improved outlook is further reflected by the fact that insiders are buying the stock. FHN expects to realize a small profit by 2008 on the deal, and to reduce expenses by about $175 million a year to boot.
"According to SEC documents, insider purchases are up 34.7% over last year and 130.1% in the last six months alone -- suggesting that insiders really see value here, even though the stock is trading at less than half its recent 52-week high of $45.44 a share.
"The key inside buyers in the last six months include Chairman Mike Rose, CFO Gerald Baker and Director Brad Martin, who have collectively purchased millions of dollars worth of shares in the mid-$20s. Now, you can buy shares at a lower price than the insiders did.
"In addition, FHN directors just announced a 7.5 million share buyback, and the shares could be subject to a short-squeeze -- either of which could send prices sharply higher in the months ahead.
"Our guess is that FHN is ripe for a takeover, particularly as the industry consolidates on the rebound from this mortgage mess. FHN is trading at a 3.5% premium to core deposits, compared with its regional-banking brethren, trading at a 23% premium. If FHN were just brought into line with its rivals, that would suggest a price of $40-$50 per share."
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