Senior analyst Anand Chokkavelu explains how he was happily surprised by a 16% pop in the shares of central New York community bank Alliance Financial on Monday. 

It's slated to be bought by NBT Bancorp in an all-stock deal (2.1779 shares of NBT for each share of Alliance), but the interesting thing for non-Alliance bank shareholders is the potential consolidation in the industry.

With about 7,200 FDIC-insured banks in the U.S. (hundreds of them public), there's a lot of room for mergers. While Anand doesn't think it's a good idea to buy a bank hoping to win the buyout lottery, buying smaller, undervalued banks occasionally pays off this way. This happened to be true for Alliance, but the shares he owns in small banks BancFirst and Great Southern Bancorp may not win the buyout lottery. And that's just fine with him, as he explains in the following video.

Some of the best opportunities over the next few years can be found in small, under-the-radar banks. One of them is featured in our report "The Stocks Only the Smartest Investors Are Buying." You can learn about it, and more, in our exclusive free report. Just click here to keep reading

The article The Hidden Lottery Ticket in These Banks originally appeared on Fool.com.

Anand Chokkavelu owns shares in Alliance Financial, Great Southern Bancorp, BancFirst, JPMorgan, and Wells Fargo. He also owns warrants in JPMorgan and Wells Fargo.  The Motley Fool owns shares of JPMorgan Chase, Bank of America, Wells Fargo, Great Southern Bancorp, BancFirst, and Citigroup and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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