Earlier this year, TheStreet, as part of its series of top-rated stocks by industry, published a list of the best regional bank stocks for 2014. I use my own rating system to choose stocks, which is based on computerized strategies I modeled after the thinking of Wall Street's most illustrious investors.
Right now, two regional banks well thought of by TheStreet are also supported by one of my guru strategies. A stock earning accolades from both sources is an opportunity well worth considering.
The strategy I modeled after the writings of Peter Lynch, the great mutual fund manager, likes the two regional banks in question. The most important variable employed by this strategy is the P/E/G ratio, which is price-to-earnings relative to growth, and measures how much the investor is paying for growth. A P/E/G of up to 1.0 (which means you are paying $1 for every 1 percentage point of growth) is acceptable.
The banks favored by my Lynch strategy are PNC Financial Services Group (PNC) and Home Bancshares (HOMB). Pittsburg-based PNC is the country's eighth-largest bank, according to Forbes, and operates in 17 states. It focuses on retail banking, asset management, corporate and institutional banking, residential mortgage banking and BlackRock, the world's largest asset manager, of which PNC owns a quarter.
PNC's yield-adjusted P/E/G is a very favorable 0.54, based on the average of its three-, four- and five-year historical EPS growth rates. Another variable in its favor is its equity-to-assets ratio, which needs to be at least 5%. In PNC's case, it is a robust 14%.
Home is an Arkansas-based community bank that, through its wholly-owned subsidiary Centennial Bank, operates in Florida, Arkansas and Alabama. Like PNC, Home's P/E/G ratio is an impressive 0.54, while its equity-to-assets ratio is a desirable 13%.
