During my recent bout with COVID, I spent my quarantine days in my office. I have everything I need in there with a TV, my computers, my books, and a day bed. I was only in there for the required five days, and for the last three, I felt pretty good, thanks in large part, I suspect, to Pfizer’s Paxlovid treatment.

When left to my own devices with lots of free time and access to vast amounts of data, a computer, and a high-speed internet connection, the inevitable happens: I start crunching numbers and testing ways to make money.

As usual, I killed a lot of ideas that sounded good but tested very poorly.

But one system that combines three of my favorite concepts did pass muster, and I have to say, produced fantastic results.

See, I’m a huge fan of companies with solid fundamentals that are buying back stock and also seeing insider cluster buying.

I set up portfolios of companies with high scores on the Piotroski F Score fundamentals checklist, reduced their share count over the past year, and saw at least three insiders buy shares in the open market over the last several months.

I then limited purchases to just the ten stocks with the highest F Scores. Finally, I rebalanced the portfolio every six months.

This combination – stock buybacks, insider buying, and strong “Econ 101” balance sheets – is a market beater. It crushed the S&P 500 in 86% of the periods I tested.

In the current environment, where many of these stocks are trading at a huge discount, that means there’s an opportunity for investors to set themselves up for incredible gains when the market rebounds.

I’ve got three picks for you here that made my list – two community banks and a fintech company that those banks are going to depend on for service. Here they are…

Two of the Oldest Small Banks in America

Peapack-Gladstone Financial Corporation (NASDAQ: PGC) is a 101-year-old bank based in Bedminster, New Jersey. They have 20 branches with a little over $6 billion in total assets. The loan portfolio is heavily skewed towards commercial real estate and commercial and industrial loans.

They are good at making these types of loans, as their nonperforming assets ratio is just .25% of all assets.

PGC also has a very well-run wealth management business with over $10 billion in assets under management. In addition, they have done an outstanding job of acquiring smaller wealth management firms and bringing them under the Peapack-Gladstone roof.

The bank serves some of the nation’s highest-income counties and tailors its private banking and asset management businesses to meet the needs of the wealthy.

The stock is changing hands at just ten times earnings right now. Insiders have been buying shares in the open market, and in the first quarter of the year, the bank repurchased 300,000 shares of Company stock at an average price of $37.26 for a total cost of $11.2 million.

We can buy the shares well below that level today – $30 as of this writing – and take a nice ride as it climbs back up.

Byline Bancorp Inc (NYSE: BY) out of Chicago also makes the cut on our buyback and insider buying model. The 107-year-old bank has 49 branches with about $6.9 billion in total assets. Byline’s loan portfolio is almost entirely business and commercial real estate related, with minimal consumer or single-family mortgage lending done by the bank.

Byline has also done an outstanding job of managing the loan portfolio. As a result, the bank has very low levels of nonperforming assets and delinquent loans.

This bank is also cheap at just ten times earnings. As a result, insiders have taken advantage of bargain pricing in recent months. In the first quarter, Byline bought back over $8 million worth of its stock to take advantage of the favorable valuation levels.

It’s already seen a 2.5% jump in the past five days and is likely to keep climbing.

Community Banks Are a Captive Audience for This Fintech Firm

Fiserv Inc (NASDAQ: FISV) is a financial technology company that is one of the largest providers of core technology platforms for the banking industry. They work with all sizes of banks and credit unions to provide the needed payments and digital banking products to serve their customer base best.

Fiserv has also ramped up its efforts to be a payment and digital service provider to the fast-growing fintech industry. As a result, this part of the business should be one of the significant drivers of earnings growth in the future.

The core business with banks will grow as well. Even the smallest banks in the smallest towns find that their customers need them to keep up with the gold standard of digital products and services offered by larger banks like J.P. Morgan.

Regional and community banks cannot develop these in-house, so they must turn towards Fiserv.

Insider and large stakeholders, including ValueAct Holdings, have been buying company shares in recent months.

The company itself has also been an enthusiastic buyer of its shares. In the first quarter of the year, Fiserv repurchased 5.1 million shares of common stock for $500 million in the first quarter of 2022.

And the overall financial picture is very rosy after a strong Q2 earnings report, showing revenues of $4.14 billion (up 10.2% YoY), and a net profit margin of 16.17%. Unlike a lot of other tech firms running on debt, these people are actually making money, and as they keep growing, the stock price will follow.

— Tim Melvin

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Source: Money Morning