The Misfits: Oak Valley Bancorp (OVLY)

Alternatively, cutting one's teeth on bank stocks.

Portrait of Szmul Zbytkower, banker to the Polish monarchy (fragment of the painting The Election of Stanisław II Augustus in Wola in 1764) , Bernardo Bellotto, 1776, oil on canvas (National Museum in Poznań)

Misfit Alpha started with a list of 672 companies. As of late 2022, all had significantly outperformed the S&P 500. At least one or two companies generated long-term returns above the S&P 500 in every industry, even industries where capital goes to die like mining, automotive, and airlines.

No industry was better represented than banks.

Some banks on the list may no longer qualify (New York Community Bancorp (NYSE: NYCB) was on the initial list). Still, banks have been one of those sources of outperformance as long as you don’t step on a mine (like NYCB).

The list made sense for the most part. There are hundreds of regional and community banks, and most of them are publicly traded.

What surprised me was how few of the biggest banks in America were on the list. Over the past 30 years (as far back as Koyfin data goes for the S&P 500), five of the 20 largest banks in the U.S. have produced returns well above the broader market. This period included the Great Recession, but the same could be said for many of these small and regional community banks that have produced spectacular results.

I’ll confess that I’m not the best bank analyst in the world. That said, if my whole schtick is to unearth the great investments getting ignored, it would be a disservice to neglect this big pocket of alpha.

After a rigorous process to select the first Misfit bank (throwing darts at a wall), I landed on Oak Valley Bancorp (NASDAQ: OVLY). The $200 million community bank in California’s Central Valley is about as bland of a bank as you can get. Yet, its returns since going public have done considerably better than the banks we read about so frequently.

Let’s dig in…

---

Shoutout to Koyfin for their data and charts. Koyfin has become an integral part of how I screen for, track, and analyze companies. Thanks to having a decade of data at my fingertips instead of manually going through stacks of quarterly and annual filings, the analysis process has become more thorough and much faster.

Up your analysis process by Signing up for Koyfin. Click on the link below and receive 10% off your annual subscription.

Disclaimer: I have an affiliate partnership with Koyfin and receive compensation if you sign up via the link above. It helps me fund this endeavor. I would still recommend using it even if I didn’t have this partnership because it’s an awesome product, but I’d be stupid to turn down a revenue opportunity. You get a discount, Koyfin gets new business, and I get a commission. Win-win-win).