Dear Mr. Berko: Please give our investment club your opinion on buying Western Alliance Bancorp. We may sell 350 shares of GM to buy it. Also, we'd like your thoughts on how the U.S. would serve its citizens better under a socialistic government. -- J.H., Oklahoma City
Dear J.H.: Holy Moses, Mary, Buddha and Allah, we already have a socialist government. Consider public housing, school lunches, child support, Medicare and Medicaid, food stamps, unemployment insurance, farm support, ad nauseum. The government's slowly increasing the means that give it greater control over how Americans run their lives. And many in Congress believe government is moving too slowly toward socialism.
The nature of government is to control as many resources as possible, expanding its size and allocating those resources among its citizens who eventually become dependent upon federal and state programs. What a marvelous idea. By relieving ourselves of responsibilities, we'll rely upon government guaranteeing our care, comfort and survival. Americans want that.
Once we've become institutionally dependent, socialism's next objective is industry. This includes our country's farms and factories, which become the property of the government, so the government controls the production and distribution of goods, not private enterprise. This seems to be the long-term goal of some members of Congress. And because of increasing voter stupidity, ignorance and laziness, this is closer to reality than ever before. The new term for this consequence is "democratic socialism," which is obviously an oxymoron, but it could become a game changer.
Winston Churchill clearly described the difference between socialism and capitalism better than any I've read: "Socialism is the philosophy of failure, the creed of ignorance and the gospel of envy. ... The inherent vice of capitalism is the unequal sharing of its blessings. While the inherent virtue of socialism is the equal sharing of miseries."
However, capitalism has its miseries, as the unequal sharing of its blessings can be societally destructive, creating corporations like Enron, Global Crossing, Goldman Sachs, Wells Fargo, Arthur Andersen and AIG and people like the Keating Five. Because capitalism allows the wealthiest 1% of citizens to own 95% of the nation's wealth, these citizens can buy $500 million yachts, spend $125 million for a canvas at Christies or $135 million for a New York City penthouse. That leaves 5% of the wealth for the remaining 99% of us to spend. All systems are imperfect, though capitalism is the least imperfect.
I like Western Alliance (WAL-$43.43) -- and so do Citigroup, Wells Fargo, Zacks, S&P, Reuters and BankAmerica -- with a 52-week range of $37 to $64. It also has a 1.55 beta that suggests WAL is 55% more volatile than the S&P 500. WAL enjoys high net interest margins (4.8%) that're 100 basis points higher than the peer average, an 18% return on equity (50 points higher than its peer group) and a 25% higher return on assets than its peers. Revenues have grown fourfold in the last eight years to $959 million in 2018 and to an expected $1.1 billion this year. Meanwhile, share earnings have increased annually from $0.21 in 2009 to an expected $4.20 this year.
WAL's service area is Arizona, California and Nevada, where management has been focusing its growth on commercial lending while opening numerous checking accounts that don't pay interest. So, if interest rates move higher and WAL increases the rates on loans, profits could increase faster than those of competitive banks because WAL doesn't have to pay more for deposits. WAL has 18,000-plus loans on its books with nonperforming loans just 0.36% of assets. This Phoenix bank is darn well run, and the Street's 12-month price objective is $55. WAL pays no dividend, but I'd buy the stock in a Sioux City second.
(Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.)