Category Archives: SFNC

For better or worse, we expect that regional financial crises will emerge as the dominant investment theme going forward. After having devastated our economy on a national basis, with the use of derivatives and residential real estate, the time has come for the old-fashion regional boom and busts of old.

With the secular trend towards inflation, as reflected in the rise in gold, silver and all other commodities, we should expect that farmland in the U.S. will ultimately take a parabolic trajectory. The gradual rise in prices of farmland by large investors will attract retail buyers. Unlike large investors, retail buyers of farmland will need to borrower heavily to participate in the speculation. Unfortunately, it will be because of the retail buyers that the boom will go to extremes. The chart below demonstrates the last farmland boom during a secular bull market in commodities.

On the way to a speculative surge and inevitable bust of the farmland boom, financial institutions will likely have to play a more significant role in financing it. To that end, we present a former Dividend Achiever that is currently on our Dividend watchlist, Simmons First National Corp (SFNC). Simmons First National is likely to become one of the many lending institutions that will play a role in financing the coming boom in commodities. From farmland to farm equipment, SFNC will definitely be in the mix. Unlike the banking institutions that will eventually arrive at the party, as an Arkansas bank, Simmons First National is already situated to play a contributing role.

Simmons has all the qualitative elements that a true value investor would want like falling only 20% in the period from 2007 to 2009 as compared to other regional banks as a group which fell over 70% as indicated by Standard & Poor’s Quantitative Stock Report dated April 8, 2011. SFNC has managed to keep the dividend at the same level since 2008 which is no small feat. Book value has increased 6.5% over the last 5 years.

Value Line Investment Survey dated March 11, 2011 indicates that SFNC has a high predictability in their earnings which have gained 3% in the last 5 years and while the last year of earnings have declined –9%. Investors should not confuse falling earnings with no earnings at all. Over emphasis of a companies declining earnings is often what creates value in the price of a stock for those unable to make this distinction.

Because SFNC has traded in a range between $20 and $30 since 2004, there is an implied element of value that has accrued in the shares. If nothing else, the management of SFNC has managed to dodge the banking crisis bullet and is now poised to participate in the coming boom in farmland as part of the bull market in commodities.