Paul Meeks: Why this tech investor is buying a bank

Published Thu, Sep 1 201612:00 AM EDT

Blasphemous! Why is a tech investor selling Amazon to buy a commercial bank, particularly one that most folks don't know? Well, I've done just that in my CNBC PRO Platinum Portfolio . This is no indictment of AMZN. My confidence in the company's driver, Amazon Web Services, only has grown as the service has maintained its huge lead, and perhaps even has lengthened it, in cloud computing, which is my tech focus. However, that stock had risen by more than 40 percent since I first bought it and had swelled to more than a third of my four-stock (by mandate) portfolio. I bet that I miss some further upside in AMZN, but I'm redeploying capital for hopefully a larger gain in Signature Bank . Therefore, AMZN was sold at $769 to make way for SBNY at $119. According to a Forbes survey, New York City–based SBNY has been among America's best (i.e., top 10) commercial banks for six consecutive years; and it was founded in only 2001. With interest rates historically low, these are troubling times for banks. Among the sectors that comprise the S & P 500 , financials and health care have performed the worst in 2016. Whether or not Fed Chair Janet Yellen was incrementally hawkish at Jackson Hole, we should expect rates to resume rising late this year or early next unless the U.S. and our key trading partners plunge into recession. I don't expect that. SBNY has performed relatively well in this tough environment, but, of course, its key metrics have deteriorated. For example, its return on assets and on shareholders' equity declined to a respective 1.14 percent and 11.98 percent in the June quarter versus 1.22 percent and 13.50 percent a year ago. But note that these figures, which probably are the most appropriate to evaluate banks, are better than that for most of SBNY's peers; and I think that they'll improve significantly as the cycle turns. SBNY's schtick is that it focuses on private companies and wealthy individuals in and around New York City. The bank is a throwback because it makes money the old-fashioned way, by taking deposits and making loans, but it does it extremely well. SBNY often hires private banking teams from established banks that have lost their focus and have become bureaucratic messes. These bankers are given more flexibility and they "eat what they kill." Many of them earn more than CEO Joe DePaolo, and that's just fine. I'm tickled that entrepreneurism is alive and well at SBNY despite banks' over regulation. If this story were "clean," then the stock wouldn't have dropped 30 percent from its $163 November 2015 high to its $114 June 2016 low. As mentioned above, business recently has worsened. Last quarter, the company posted a relatively rare earnings disappointment, which featured a $24 million increase in a loan loss provision for Chicago taxi medallion lending. It looks like Uber and Lyft have taken their toll (no pun intended) on the yellow cab. I believe in the "cockroach" theory. That is, negative quarterly surprises rarely are isolated. Problems often are deeper, just like once you've seen one cockroach when you turn on the kitchen light, you know that there are many more lurking out of sight. Frankly, I think that most of SBNY's troubles continue, but the question that we must ask is: "Are this bank's fundamental issues already fully reflected in its shares?" Maybe or maybe not. Nonetheless, I'm confident that this stock will rise significantly after the smoke clears and with rising rates as a catalyst. Therefore, I'm betting on SBNY for the long term right now. Thankfully, I'm already up $3 since I bought the stock last week in my Platinum Portfolio. Although I may be wrong, I believe that the stock's risk is limited to $114, which is -7%. I bet that over time — I'll forecast a three-year investment horizon — SBNY returns to $163, which would be a greater than 30-percent return. At current prices, I like SBNY more than AMZN, but I feel that both will be long-term champs. Paul Meeks is a technology investor and member of the "Squawk Box" Platinum Portfolio competition for CNBC PRO.

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Blasphemous! Why is a tech investor selling Amazon to buy a commercial bank, particularly one that most folks don't know?

Well, I've done just that in my CNBC PRO Platinum Portfolio.

This is no indictment of AMZN. My confidence in the company's driver, Amazon Web Services, only has grown as the service has maintained its huge lead, and perhaps even has lengthened it, in cloud computing, which is my tech focus. However, that stock had risen by more than 40 percent since I first bought it and had swelled to more than a third of my four-stock (by mandate) portfolio. I bet that I miss some further upside in AMZN, but I'm redeploying capital for hopefully a larger gain in Signature Bank. Therefore, AMZN was sold at $769 to make way for SBNY at $119.

According to a Forbes survey, New York City–based SBNY has been among America's best (i.e., top 10) commercial banks for six consecutive years; and it was founded in only 2001.