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Motley Fool: M&T Bank’s struggles could make it attractive to investors

While M&T Bank may face some short-term pain, it presents an opportunity to buy a long-standing, strong-performing bank stock at a historically low price-to-tangible-book-value ratio  (Bloomberg)

M&T Bank (NYSE: MTB) turned in disappointing second-quarter results in July. Its struggles have recently depressed the stock, meaning this could be a good time for interested investors to buy.

Consumer lending is seeing more momentum these days than commercial lending, and M&T is mainly a commercial lender. Its credit quality has deteriorated lately, too – its nonaccrual loans, those that have gone 90 days without receiving a payment, climbed 15% year over year in the second quarter.

But M&T Bank is growing noninterest-bearing deposits nicely, so it’s paying no interest on roughly 43% of total deposits. Also promising is M&T’s upcoming acquisition of Connecticut-based bank People’s United.

Its addition will significantly enlarge M&T and its tangible book value, of TBV. Banks trade based on TBV, so a growing TBV typically helps the stock. The deal is also expected to boost M&T’s earnings per share by 10% to 12% in 2023.

It should open up new revenue opportunities as well; People’s United has many small business commercial customers to whom M&T can cross-sell products and services. Meanwhile, People’s United brings a solid equipment financing business that it can expand to M&T customers.

While M&T Bank may face some short-term pain, this is an opportunity to buy a long-standing, strong-performing bank stock at a historically low price-to-tangible-book-value ratio – with a dividend recently yielding around 3.2%.

Ask the FoolQ: What does it mean if a company goes public via a direct listing? – B.N., Madison, Indiana

A: Think of a traditional IPO – the initial public offering by which most companies “go public,” issuing new shares to trade on the public markets for the first time.

The process typically involves companies hiring investment banks as underwriters to manage the process – including determining an appropriate valuation for the company and stock price. For that, underwriters have often received as much as 7% of the gross IPO proceeds.

With a direct listing, companies bypass underwriting intermediaries and sell existing shares (such as those owned by employees) to the public, saving money.

Q: What’s so bad about buying a stock at, say, $30 instead of $20, if you’re sure it’s heading to $60 in 10 years? – C.D., Walnut Creek, California

A: It’s all in the math. Imagine Holy Karaoke Inc. (ticker: HYMNS) is trading at $30, and you expect it to reach $60 in a decade. That would be a 100% gain in 10 years, equal to an average annual gain of about 7.2%.

But if you bought it at $20 and it hit $60 in 10 years, that would be a tripling – a gain of 200% (around 11.6% per year, annualized).

Considering that the overall stock market has gained around 10% annually over long periods, you can see that an annual gain of 7% is less attractive than an 11% one.

Still, there’s a case to be made that getting into a terrific stock at $30 instead of $20 is OK – especially if you hope to hold it for many years. In general, though, the price you pay for a stock matters.

My dumbest investmentMy dumbest investment was selling my shares of Microsoft for around $40 apiece in 2014. (I had purchased them in 2008 for around $30 each.)

I learned it’s better to hold on to a great business, unless the underlying fundamentals of the business have changed. – D.B., online

The Fool responds: It’s an extremely common error to sell shares of a terrific business prematurely – and many people do so after achieving a reasonable gain, like you did.

Your $30-to-$40 journey with the stock got you a 33% gain, but as you know, had you hung on, you’d have done much better.

After you sold your shares at around $40, the stock kept increasing in value, albeit not in a straight line.

Shares were recently trading for around $300 apiece. So had you hung on, you’d have a 900% gain on your hands. Over the 13 years since you bought them, they’d have grown at an average annual rate of about 19%.

The story is the same for many long-term great performers: Many people sold after a 20% or 50% or even a 100% or 300% gain, only to miss out on gains of 1,000% or 10,000% – or even more!

The more you learn about your holdings, the stronger your convictions about them are likely to be, which can help you hang on as long as their futures seem promising.