Let's wrap up our look at banks in America's 10 best states for business by checking out some good publicly traded financial firms based in Iowa and Florida.
I've spent the past few days running down some promising bank stocks in locales that led CNBC's "2016 Top States for Business" rankings.
As I've said all week, owning banks that are based in business-friendly states makes a lot of sense to me. After all, if business is good somewhere, then the banking is probably good there, too.
The trick is to find those banks stocks that offer a decent entry price and fit my financial criteria. I'm a notorious cheapskate when it comes to banks, and I'm just not comfortable paying much over book value. Fortunately, I did manage to find a bank or two in most of the top-10 states on CNBC's list. In fact, some of the states host a few of my favorite bank stocks of all. (Click here, here, here, here and here for my previous columns on the subject.)
Let's finish up our list by looking at some good bank stocks in No. 9-ranked Iowa and No. 10 Florida:
When I think of Iowa, my immediate impression is of farming and corn. I and a bunch of friends met in Chicago and drove to Iowa City for a football game a few years back, and what I remember most about that was the cornfields. It was almost harvest time, and driving up the highway was a little like being in corn maze. There was so much corn that it felt like I was in Stephen King novel.
But while there's indeed a lot of corn in Iowa, there's more to the state's economy than just farming. I have a good friend who works in Iowa's bio-renewable and biofuel industries, and both are robust businesses.
The Iowa Economic Development Authority has also pointed out that with abundant wind resources and access to major transmission points, the state should also eventually become a major player in wind energy. Iowa also has a decent manufacturing and financial-services presence as well.
All in all, the state's agricultural strength helps drive several other industries, so Iowa is in better economic shape than much of the country is. The problem with Iowa's banks is that the larger ones are also in great shape -- and everyone knows it. As a result, they all trade at high premiums to book value.
Banks like Meta Financial (CASH) , Heartland Financial (HTLF) and West Bancorp (WTBA) are all doing very well, with excellent returns on assets and equity. But they also trade for more than 170% of tangible book value.
You might able to make a case for buying them anyway based on price-to-earnings ratios and growth rates. But I'd prefer to see a substantial pullback in valuations before buying these high-quality banks.
There are also several very small Iowa banks that are well run and attractively priced, but they're way too small to mention here. Real Money doesn't like to write about stocks with a sub-$100 million market capitalization due to excess volatility, but those of you willing to find them yourselves should be well-rewarded.
While my current home state of Florida definitely provides a constant stream of legislative comedy, it nonetheless has a very pro-business, pro-job and pro-low-tax state government.
Florida is also historically the first state to boom and the first one to bust, so when things last looked like they were turning back to a boom, I simply bought shares of all publicly traded Florida banks.
I reckoned that a lot of banks would want to be in the Sunshine State market, so some M&A deals look inevitable. We also saw a lot of Federal Deposit Insurance Corp.-assisted transactions during the recent bust that created new regional banks like Capital Bank Financial (CBF) and allowed other banks to expand on very favorable terms.
Chairman John Allison of Home Bancshares (HOMB) said on a recent conference call: "We'll continue to build in Florida. I mean, you've got four or five [banks] down there that need a sale -- pretty good-sized companies that should be sold and put in the hands of strong operators to reward the shareholders properly for what they deserve. There's some down there that hadn't rewarded their shareholders in years and should be put in strong hands."
If I had to pick one Florida bank to own, it would be Sunshine Bancorp (SBCP) . I'm big fan of CEO Andrew Samuel, and I think the bank has an outstanding opportunity to grow in the I-4 corridor between Tampa and Orlando. The stock currently trades at about 120% of tangible book value, but I think you can pay up a little for an initial position and be prepared to buy more on any market weakness.
Several activist investors -- including Joseph Stilwell, Lawrence Seidman and Basswood Capital -- already have a position in the name. So, should SBCP fail to grow, these activists could pressure management to sell.
However, you don't have to pick one Florida bank to buy. To my mind, the best strategy is to simply buy as many Florida-based banks as you can, especially on weakness.