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Big Bang With Small Bank Stocks


Under siege for most of the past several years, the financial services sector has finally shown legitimate signs of life in 2012.

Last year, CapLease sold $240 million of debt investments and reduced its debt portfolio 74%. Portfolio leverage was reduced to 66%. The risk investors must acknowledge with CapLease or any other REIT is that Congress could move to change the tax treatment of certain dividend asset classes, such as MLPs, or REITs, in an effort to bolster tax revenue.

A change to the corporate structure of REIT would likely send investors scurrying out of an asset class that has been a favored destination in this low interest rate environment. To be sure, there is no guarantee Congress will force REITs into a traditional corporate tax structure. It is merely an issue investors to keep on their radar screens.

Artio Global Investors (NYSE:ART): Asset manager Artio is easily the most controversial name on this list. Maybe it is because the company had $16.7 billion in assets under management at the end of October compared with $17.7 billion at the end of September. Or maybe it is because the stock trades for less than $2. Or maybe investors have not warmed to management changes that took place earlier this year.

Artio started paying its dividend in 2010 and currently yields 4.4%, but the company's payout ratio is just 18%, indicating there is room for dividend growth and that the firm is not being overwhelmed by its dividend. Consider this stock a deep value play because the shares trade for less than 0.8 times book value and less than eight times cash flow.

**The screening methodology used for this included the following parameters: Only stocks that currently reside in the micro-cap universe, yields above 3%, financial services stocks excluding closed-end funds and average daily volume of at least 50,000 shares.

Editor's Note: This content was originally published on by Gordon Wilcox.

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No positions in stocks mentioned.

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