My stock recommendations come from computerized strategies I created that mirror how a dozen or so Wall Street greats invest. When a particular industry has a number of stocks earning recommendations, I know that is an industry worth looking at closely.
Right now, such an industry is regional banks. These financial institutions are buffeted from international economic weakness, such as from China and the European Union, because they focus on local and regional markets. They are also in a position to benefit when the Federal Reserve raises interest rates, a likely scenario during the next several months and, perhaps, as soon as next month. In addition, year-to-date, SPDR S&P Regional Banking ETF (KRE) has enjoyed a 6.54% return, vs. the S&P 500's 0.69%.
Let me tell you about three regional banks with somewhat small market caps. All are recommended by my Peter Lynch-based strategy, which emphasizes the P/E/G ratio, which is price-to-earnings relative to growth, and is a measure of how much the investor is paying for growth. The maximum P/E/G allowed is 1.0. Stocks that earn this strategy's recommendation are particularly well priced.
TriCo Bancshares (TCBK): Operating as Tri Counties Bank, TriCo, headquartered in Chico, Calif., operates 67 branches in Northern and Central California. Its market cap is about $640 million and its P/E/G is a strong 0.76. With financial institutions, the Lynch strategy also considers the amount of assets relative to equity, and it wants assets to be at least 5% of equity; TriCo's assets are more than double this minimum at 11%.
Home BancShares (HOMB): Operates under Centennial Bank moniker in Arkansas, Florida and south Alabama, via a network of 151 branches. Headquartered in Conway, Ark., the bank's market cap is $3.1 billion, while its P/E/G is 0.64 and equity is 13% of assets.
S&T Bancorp (STBA): Operating primarily in south-central and southwest Pennsylvania, S&T, based in Indiana, Pa., has a market cap of $1.2 billion and operates from about 58 branches. Its stock has a very favorable P/E/G of 0.44 and equity equals 13% of assets.
Strong performers with well-priced stocks, these three regional banks are certainly worth considering adding to your portfolio.
