2009 Investment Guide

Special Report

2009 Investment Guide

Edited by Paul Maidment & Neil Weinberg, 11.19.08, 06:00 PM EST

It's gut-check time for savers, a time to reconsider long-term financial goals and how to achieve them. The stories offer ways to make realistic plans, protect what you've got and ensure your portfolio resumes its growth. We also offer insights on advisers, charities and complex annuities.

Money in the Bank

Susan Kitchens, 12.08.08, 12:00 AM EST

Not all financials deserve a bad rap. Accounting sleuth Donn Vickrey says he's stumbled on some gems.

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Donn Vickrey sticks to his guns when making tough stock calls. The former accounting professor landed in court a few years ago after Patrick Byrne, the fiery founder ofOverstock.com (nasdaq: OSTK - news - people ), accused him of conspiring with short-sellers to trash his stock. (The case was settled in October for undisclosed terms.)

A year ago Vickrey's firm, Gradient Analytics, began warning its mutual and hedge fund clients thatWashington Mutual (nyse: WM - news - people ) was failing to take adequate charges for shaky loans. In February it gave AIG an "F" for earnings quality.

Now that the market has spiraled downward, Vickrey is dispensing more contrarian advice: Buy financials. Not the industry as a whole, which he says could fall further, but a handful of gems he says he unearthed while digging for land mines. "What we've tried to do recently is find pretty boring stocks that happen to have solid fundamentals," he says.

By boring and solid Vickrey means banks with conservative accounting, diverse loan portfolios and hefty reserves. That has drawn him to regional banks, like National Penn Bancshares (nasdaq: NPBC - news - people ). This Boyertown, Pa., outfit, with 127 branches across three states, saw nonperforming loans drop 8.5% in the second quarter to 0.36% of total loans. Vickrey doesn't expect much deterioration as the economy sours, given National Penn's dowdy book of commercial, consumer and student loans. If loans do turn sickly, the bank has a comfy reserve cushion of $3.75 for each dollar of nonperforming loans. "That is almost unheard of these days," he says.

Vickrey values financials by comparing share prices to tangible book value adjusted for his own estimate of how well an institution is provisioned for likely losses. If reserves seem paltry, he pares back book value. Despite its solid standing, National Penn is trading for 2.6 times Vickrey's adjusted tangible book value, versus 2.1 times for all banks.

StellarOne is a $3 billion (assets) bank located in Charlottesville, Va., trading for 1.2 times adjusted tangible book value. Nonperforming loans will likely decrease in the third quarter. Vickrey likes StellarOne's 12% ratio of equity to risk-weighted assets. That is double the required level.

A few other fuddy-duddy regionals that pass muster: $10.7 billion (assets) FirstMerit(nasdaq: FMER - news - people ) of Akron, Ohio, with $2.70 of reserves for each dollar of nonperforming loans and with a skimpy charge-off of bad loans, equal to 0.16% of assets per quarter in the first nine months; and $13.3 billion (assets) BancorpSouth(nyse: BXS - news - people ) of Tupelo, Miss., with an 11% ratio of equity to adjusted assets.