Despite the volatility caused by two banks collapsing over the weekend, the broader market is still overvalued, so I have been avoiding that for the most part.
Instead, I’ve been looking at special situations. And for this week’s Hidden Profit Report, I’ve uncovered two situations that have the potential to deliver strong returns no matter what the market does.
And, best of all, both companies involved in these trades are ones you will be okay with owning for the long term if the short-term scenario does not play out as hoped…
The first special situation for this week is First Horizon Corp. (FHN).
About a year ago, Toronto-Dominion Bank (TD), also known as TD Bank Group, made a $25-per-share offer to buy First Horizon.
The offer makes much sense. First Horizon has a very attractive franchise with operations in 12 southern states, including Florida and Texas, two of the most attractive markets in the United States. The bank has 444 branches across the region with close to $80 billion in assets, plus plenty of capital. And the loan portfolio is in fantastic shape.
At $25 per share, TD Bank is paying 2.4 times the book value and 16 times the earnings for the First Horizon franchise.
Under the decidedly bank-unfriendly Biden Administration, regulators are still dragging their heels long after the deal should have closed. In the first week of March, TD announced that it was unlikely to receive approval to close the deal before the May 27 merger deadline.
There are two possible outcomes. First, TD Bank says it is committed to closing the deal. The deal could still close, and we can get paid $25 a share.
Given the massive volatility we have seen as a result of Silicon Valley Bancshares (SIVB), Silvergate (SI), and Signature Bank (SBNY) collapses, the deal closing looks unlikely at this point.
