A Bank That Everyone Loves… Except for Wall Street

A Bank That Everyone Loves… Except for Wall Street

When was the last time you had a truly enjoyable personal banking experience?

If it’s been awhile… and you find yourself passing through northern Texas… you may want to check this “blast from the past” out…

Its branches have been awarded perfect “five star” ratings by patrons on popular review site Yelp. The folks who bank there can’t rave enough about the excellent customer service.

Its shareholders love it, too. The stock has delivered 158% in capital gains over the past decade.

And that’s not counting all of the dividends! The bank is on a 19-year dividend increase streak, and shares currently yield a very respectable 3%.

That’s more than you’ll see from a bank account these days. And they also issue a special dividend to investors every year on top of this!

So what’s not to like?

Not much… unless you’re the one group that is not enamored with Southside Bancshares (NASDAQ:SBSI) right now.

That’d be the Wall Street herd.

Short interest on SBSI – the number of shares sold short by investors – has doubled over the past three months.

And with three million shares currently sold short, and only 110,000 shares trading hands daily, it’d take these guys nearly a full month to cover their bets!

These bears are betting that Southside’s upcoming merger with OmniAmerican Bancorp (NASDAQ:OABC) is a bad idea. That’s because OmniAmerican is not the excellent bank that its new parent is.

However, OmniAmerican has branches in hot, growing locations. These will provide Southside with a cost efficient way to expand – because they’re buying OmniAmerican on the cheap.

And after an initial panic, the market is realizing that this acquisition could work out quite well for Southside. Not only will they get these cherry locations, but they’ll probably whip their operations into shape, too…

Uh oh, short sellers… this trade is not going your way!

This month, shares have risen nearly 10% to date. This upward trend will put increasing pressure on short sellers to cover their ill-advised bets.

Remember, we love situations in which the short interest on a stock rises in tandem with its price.

I call this a “Chinese water torture” style short squeeze… the bears are on the wrong side of it, and they make their situation worse by “doubling down!”

The key “catalyst” here is the new uptrend in SBSI. When the stock sold off post-merger, these facts were still in place. However, we didn’t yet know how far the stock would fall… and we had far less short bets piled on the other side of this trade.

The stock is not expensive – it’s trading hands at a reasonable 13 times earnings. That’s certainly not something that I’d short!

And only two analysts cover the stock. Both went out on a limb to call it a “Hold.” There wasn’t exactly a lot of thought and information that drove the initial post-merger announcement selloff.

Now that SBSI is starting to carve out a bottom and “break out” to the upside, it’s definitely worth watching. So grab some popcorn, kick back in your favorite summer easy chair, and enjoy the view as the short sellers scramble to cover their unfolding mess.

Stay contrary,


PS – If you like “short squeeze” contrarian trades like this one, please sign up to “beta test” my new trading service, Contrarian Speculator. It’s free during the testing phase, and you’ll get a new trade recommendation from me every Tuesday.

About Author


Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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