CapitalSource is sort of a lender of last resort to small and medium-sized companies. They traffic is mezzanine and senior debt, asset-backed financing, and real estate lending. These are all sectors that have been under pressure lately and it shows in the stock price. Shares have just about been cut in half in the last year. The stock is trading at about 5x forward earnings, a 0.40 PEG ratio, slightly under book value. It's yield is over 20%. So we know that it's cheap.
What I really like about the company is that it continues to hew to it's core competency of vulture investing. It's taking advantage of market conditions and just bought 22 branches of California-based bank in Fremont General . This will give them access to 5.6 million in deposits.
As the press release noted, "CapitalSource will pay a 2 percent premium on the bank's deposits, receive a discount on retained interest in certain real estate loans the bank holds, and pay an additional $58 million to Fremont for the branches" That's a sweetheart of a deal. This is classic blood in the streets investing.
$12.1 (04/14/08)
