The challenge that these banks face going forward relates to the same benefit they've received over the years -- which is interest rates. These have increased dramatically over the last four to five weeks.... My own expectation is that rates will continue to rise as the economy steadily improves, so I think as you look to invest in the regional-banking industry, you need to keep those issues in mind and understand that companies that have benefited significantly from these two trends may be susceptible to weakness unless they change their strategic approach.
Companies that we currently favor: two regional banks, SouthTrust Corp. (SOTR ) and Banknorth (BNK ). They have good management teams and pay a good dividend of about 3%.
Q: Do you like any specialty retailers?
A: I do like some specialty retailers.... Two stocks that I have owned include Tuesday Morning (TUES ) and Cost Plus (CPWM ). We initiated positions in both these stocks in the first quarter. While we continue to like them both, today, from a fundamental perspective, the stocks have been very strong performers, and they're currently trading at the high end of their valuation ranges.
I should note that we sold our