Six Mid-sized Bank Stocks to Buy in Battling Inflation

Paul Dykewicz

Six mid-sized bank stocks to buy in the battle against inflation feature financial holding companies in an industry that seems well-positioned to sidestep perils amid the pandemic.

The six mid-sized bank stocks to buy provide investors with ways to profit despite the rising risk of inflation. Banks could gain a lift from increased customer interest in mortgages that may be stronger vs. pre-pandemic years due to increased appetite for home ownership, according to a recent report from BofA Global Research.

Momentum also has been seen by BofA across capital markets businesses. The current conditions with banks paying next to nothing for deposits and charging higher interest rates to borrowers boosts their outlook for increased profits.

Seasoned Stock Picker Sees Strength for the Broad Banking Business

“This is an ideal environment for banks,” said Mark Skousen, head of the Forecasts & Strategies newsletter and the Home Run Trader, Five Star Trader, Fast Money Alert and TNT Trader advisory services. The economy is strong. Unemployment is falling. Interest rates are rising. The demand for loans is strong. And asset quality is improving. Even used car prices are up 34% over the past year.”

Mark Skousen, PhD, leader of Forecasts & Strategies, meets with Paul Dykewicz.

Six Mid-sized Bank Stocks to Buy Affected by Asset Mix and Fee Income

BofA is assuming that cash as a percentage of average earnings assets (AEA) reverts to pre-pandemic levels, either deployed into investment securities or toward funding loan growth. Cash balances for its coverage universe stood at 13% of AEA as of second-quarter 2021 vs. 4%/6% in 4Q19/1Q20.

Of course, loan growth will be influenced by multiple external factors, such as an expected rebound in inventories amid supply chain normalization, drawdown of the $2 trillion in excess liquidity sitting on consumer balance sheets and growing confidence among businesses to drive capital expenditure spending. All three are connected to the lack of any material disruptions tied to COVID-19, BofA wrote.

Fund Offers Alternative to Six Mid-sized Bank Stocks to Buy

Mid-sized banks to buy have attracted interest from investment industry veteran Jim Woods, chief of the Successful Investing and Intelligence Report newsletters and the Bullseye Stock Trader and Eagle Eye Opener advisory services. Woods wrote to his Intelligence Report subscribers that he generally is seeing positive third-quarter 2021 earnings results for bank stocks, along with increased interest rates, bond yields and economic growth.

The Financial Select Sector SPDR Fund (XLF) has become his preferred way to invest in the sector as it has  blitzed the SPDR S&P 500 ETF (SPY) so far in 2021. While SPY is up 23.1% year to date, XLF has soared 39.4%. That move is likely to continue based not only on the fundamental reasons just mentioned, but also from a technical perspective. Woods forecast that the upside in XLF during the months ahead could be “substantial.”

Chart courtesy of www.stockcharts.com

Upbeat earnings results for financial stocks, along with the rise in interest rates and the robust growth in what now is basically the post-pandemic economy, has translated into a big move higher for banking stocks.

Paul Dykewicz meets with Wall Street veteran Jim Woods, editor of Intelligence Report.

Pension Chairman Takes Conservative Approach to Investing in Banks

Bank stocks account for a significant portion of what pension fund chairman Bob Carlson described as a “favorite value stock” investment. Carlson, who heads the Retirement Watch investment newsletter and serves as chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets, said the Oakmark (MUTF: OAKMX) fund uses valuation measures to assess companies in various industries. Those industries include financial services providers, such as mid-sized banks that offer investors value and profits.

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Retirement Watch chief Bob Carlson answers questions from Paul Dykewicz.

Investors Can Choose from Among Six Mid-sized Bank Stocks to Buy

Financial services account for 33.9% of Oakmark’s holdings and New York-based Citigroup Inc. (NYSE: C) is its fourth-largest position. McLean, Virginia-based Capital One Financial Corp. (NYSE: COF) is the fund’s second-largest holding. Capital One Financial, known mainly for its credit cards and the television commercials, also is a significant mid-Atlantic banking presence after buying a regional bank 10-plus years ago, Carlson said.

Chart courtesy of www.stockcharts.com

When interest rates climb, large-cap banks usually can expand the spreads they earn between what they pay for deposits and what they collect by charging higher interest rates to borrowers. However, a problem can arise if banks keep too many fixed-rate loans that can lose their appeal if interest rates jump.

BofA’s recent research report predicted that the deposits that banks have collected from borrowers since the worst of the pandemic should be retained. Even though the deposit mix-shift is likely to move toward interest bearing deposits, banks clearly have more leeway to lag deposit pricing compared to the 2015-18 rate, the report noted. Deposit balances for the industry grew in the middle part of the last decade after the Fed began tapering its post-financial crisis quantitative easing.

East West Bancorp Is One Of the Six Mid-sized Bank Stocks to Buy

East West Bancorp, Incorporated (NASDAQ: EWBC), of Pasadena, California, has more than 120 locations in the United States and China. The company’s American branches are in California, Georgia, Massachusetts, Nevada, New York, Texas and Washington. East West Bancorp’s presence includes full-service branches in Hong Kong, Shanghai, Shantou and Shenzhen, as well as offices in Beijing, Chongqing, Guangzhou and Xiamen.

The bank holding company offers the “most attractive risk/reward” among the mid-sized banks at 13.4x price-to-earnings (P/E), in-line with its peers, according to BofA. East West Bancorp has been growing its core deposit base in recent quarters and its management has raised its loan growth outlook.

Any “thawing” of current U.S.-China tensions after a potential upcoming meeting between leaders of the two countries before year-end could help improve market perception, BofA wrote in a recent research note. Other than deteriorating U.S.-China relations amid the latter country’s aggressive behavior and threats of military action, downside to the bank’s prospects include a potential worsening in the macroeconomic outlook and a possible decline in interest rates.

East West Bancorp received a $100 price objective from BofA, with a P/E multiple of 17.5, ranking above its peers due to a higher return profile. The bank could benefit from a faster-than-expected economic recovery, along with higher interest rates, BofA added.

Chart courtesy of www.stockcharts.com

First Bancorp Puerto Rico Earns Spot in Six Mid-sized Bank Stocks to Buy

First Bancorp Puerto Rico (NYSE:FBP) shares outperformed peers after the company reported 3Q21 core earnings per share of 37 cents, excluding 1-cent in merger charges, beating BofA’s more conservative estimates. The 3 cents a share “beat” of BofA’s estimate was driven by lower credit costs and lower expenses, partially offset by lower net interest income.

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Merger integration remains on track, with FBP’s management having completed all remaining systems conversions and pivoting focus toward growing the franchise. BofA wrote. Management provided an upbeat growth outlook, highlighting increasing economic activity in Southern Florida and an improved business environment in Puerto Rico. Plus, Puerto Rico has an 81% rate of fully vaccinated people aged 12yrs and up, vs. roughly 57% for United State.

With FBP showing strong 3Q results and its management reaffirming that its shares should continue to outperform, BofA reaffirmed its “Buy” rating and $16 price objective on the stock.

Chart courtesy of www.stockcharts.com

Six Mid-sized Bank Stocks to Buy Include New York Community Bancorp

New York Community Bancorp (NYSE: NYCB), of Hicksville, New York, is the parent company of New York Community Bank, New York State-chartered bank. BoA’s price objective on NYCB of $17 is accompanied with a “Buy” rating. NYCB received a valuation above its peers due to a strong dividend yield and a healthy credit profile, according to BofA.

Upside to BofA’s price objective include better-than-expected balance sheet growth and steepening of the yield curve. Risks to the price objective are worse-than-expected loan growth and flattening in the U.S. Treasury yield curve.

Signature Bank Seizes Spot Among Six Mid-sized Bank Stocks to Buy

Unlike most quarters, there was no intra-quarter update provided by the bank’s management. This created added uncertainty for what already is a hard-to-predict business model for Signature Bank (NASDAQ: SBNY), a New York-based full-service commercial bank with 37 private client offices throughout the New York, Connecticut, California and North Carolina.

BofA wrote that the bank’s loan and deposit growth could once again surpass expectations. Moreover, the backdrop of a steepening yield curve should allow its management to provide a relatively constructive message on spread revenue and margin prospects.

In addition to SBNY’s crypto business, which includes lending against Bitcoin, BofA wrote that the market will be monitoring Signature Bank’s recent endeavors, including mortgage warehouse and small business administration (SBA) lending.

BofA gave a price target of $405 to SBNY, and assigned a valuation multiple above its peers due to stronger balance sheet growth and a healthy credit profile. The stock could outperform that forecast with a better-than-expected macro environment and increasing long-term rates, according to the investment bank.

Of course, downside risks to reaching that price objective are required loan loss provisioning at higher-than-forecast levels, further deterioration in rental income for commercial properties and a longer-than-anticipated low-rate environment, BofA wrote.

Chart courtesy of www.stockcharts.com

Six Mid-sized Bank Stocks to Buy Enhanced by SVB Financial Group 

SVB Financial Group (NASDAQ: SIVB), of Santa Clara, California, is the holding company of Silicon Valley Bank.  BofA expects another solid quarter on the back of its August equity raise. Focus will be on management’s preliminary 2022 guidance, which should provide a first look into the growth outlooks for the recently acquired wealth management business and for the expansion of its investment bank into the technology sector.

BofA’s price target on SIVB of $750 and accompanied with a “Buy” rating on the stock. Plus, BofA values the bank above the average multiple for the mid-sized to small- cap universe it follows due to a significantly higher return profile and stronger balance sheet growth outlook.

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Potential risks are a longer than expected low-rate environment and a slowdown in the technology sector, as well as related IPO activity. Pluses could come from a sooner-than-expected pickup in the technology sector and the overall economy.

Chart courtesy of www.stockcharts.com

Synovus Financial Corp. Earns Spot in Six Mid-sized Bank Stocks to Buy

Formerly Columbus Bank and Trust Company, Synovus Financial Corp. (NYSE: SNV), of Columbus, Georgia, is a financial services company with approximately $45 billion in assets. The company outperformed BofA’s expectations with its strong third-quarter results. Plus, the bank holding company’s management disclosed plans to add investment banking to its existing business.

BofA gives SNV a “Buy” rating and a $60 price objective. If the bank holding company can deliver “superior growth” on a sustained basis, the stock has a chance to merit a “re-rating opportunity,” according to BofA.

Chart courtesy of www.stockcharts.com

Improving COVID-19 Case Numbers May Help Eight Dividend-paying Banking Investments to Purchase 

The threat of the highly transmissible Delta variant of COVID-19 seems to be waning in the United States as cases and deaths are on the decline. In addition, the adult population in the United States increasingly is getting vaccinated. Plus, the U.S. Food and Drug Administration (FDA) recently issued emergency use authorization (EUA) for a single booster shot of the Pfizer-BioNTech COVID-19 vaccine for high-risk groups.

A booster shot of the Pfizer-BioNTech vaccine can be given to people aged 65 years and older at least six months after they receive a second dose of that vaccine to guard against COVID-19. The booster shot also is approved for people aged 18 years and older who have underlying medical conditions and those aged 18 and older who live or work in high-risk settings.

The Centers for Disease Control and Prevention (CDC) reported on Oct. 26 that 220,648,845 people, or 66.5% of the U.S. population, have received at least one dose of a COVID-19 vaccine. The fully vaccinated total 190,793,100 people, or 57.5%, of the U.S. population, according to the CDC.

Globally, COVID-19 cases reached 244,428,695 and led to 4,962,486 deaths, as of Oct. 26, according to Johns Hopkins University. U.S. COVID-19 cases totaled 45,606,112 and were blamed for 738,716 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The six mid-sized bank stocks to buy offer investors an opportunity to profit from their continuing outperformance of the S&P 500.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of  StockInvestor.com and DividendInvestor.com,  a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many othersCall 202-677-4457 for special pricing.

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It was back in early April of this year that Fed Chairman Jerome Powell was turning up the volume on his policy mantra that inflation is “transitory” and price pressures would see relief in the near term. Six months later, wage, commodity, finished goods, transportation and consumer discretionary inflation are still very persistent with few reports of supply-chain bottlenecks loosening up. Inflation is trending higher, and the Fed is set to begin tapering by the end of the year, sending b

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