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Takeover Talk for Oppenheimer

The latest earnings release on Oppenheimer Holdings (OPY) was very strong, asserts Douglas Hughes, editor of BankNewsletter. In fact, the advisor notes that he has been following the stock for almost a decade — and  was the only shareholder at their last annual meeting.

The CEO, Albert Lowenthal — better know as "Bud" — has been there for over 40 years and is smart and prudent. In fact, he owns over 26% of the stock and always adds to his position, never sells any shares.

More from Douglas Hughes: AvidBank: "The Best of Both Worlds"

I am certainly aware that the old culture, in which integrity and a customer-first attitude generally prevailed is long gone — not just at Oppenheimer, but on most of Wall Street. 

When I think about investing in any firm, especially a small investment bank that is heavily regulated, leveraged, and difficult for anyone other than the board to analyze, I factor in everything I can to the firm's culture and values. Regulation costs seem to be finally ending this is why I am so positive on this firm.

I have been debating what to do after run-up in the stock price this month. Is this relevant to our investment process? We think yes for many reasons. 

1) The argument that Oppenheimer is just buying back shares to help out long-time employees get a fair price for there shares today is just wrong. Most employees average cost is well over $25 a share, so I doubt they would sell there shares now. Many have waited 20 years for a payday — not a few bucks.

See also: Five Favorites in the Small Cap Arena

2) Lowenthal is 73 now, time to maybe retire. I highly doubt that his son will take over the firm. In fact, his son did not even attend the annual meeting this year. With the market at a high, Lowenthal will most likely sell; he will not miss this opportunity.

3) Just the fact that they are being so aggressive on the share repurchase — even after the big-run up — makes me think he wants the stock up to at least book value or 20% more than the tangible book of $30 a share.

4) Oppenheimer has been cutting lease costs, people, debt and regulatory costs are almost done, so the set up is perfect today for a sale. 

Our final thought is simply that Oppenheimer is trading at a P/E of under 8 that is dropping. Oppenheimer's income is at a record high today and it would be worth a substantial premium to tangible book value.

I believe my investment thesis remains intact if not stronger after these recent results. I am not selling any shares; in fact, I am adding more up to $30 a share.