The banking business has been on a tear over the past few years — with loan growth accelerating, defaults falling, and stock prices rising sharply. On the latter count, things have really accelerated dramatically in only the past few weeks.
The PowerShares KBW Bank Portfolio (KBWB, Rated “B”), a benchmark ETF that tracks the 24 biggest U.S. banks, is up a bit over 134% in the last five years. That exceeds an otherwise impressive 106% climb for the SPDR S&P 500 ETF (SPY, Rated “B”). In fact, KBWB has tacked on 12.9% in just the last three months – almost double the SPY.
If bank investing were about indexes, we would all put our money into the 24 banks in the KBW Index and call it a day. But banks are no different from other stocks in the sense that the really exciting growth is below the radar.
So, what is the bank equivalent of a small-cap stock? And which ones should top your shopping list this holiday season? I used the powerful stock Screening tools available to Weiss Ratings Platinum subscribers (Click here to join them) to sort through our database and find out.
I started by zeroing in on bank stocks with market capitalizations between $500 million and $1 billion. That eliminates the behemoths everyone knows about, as well as the tiniest banks whose shares could have liquidity problems. In fact, to help out further on that front, I added a filter that eliminated any stock with 30-day average trading volume of less than 50,000 shares.
Next, I layered in filters for Weiss Rating, year-to-date returns, and home country. I didn’t want any stocks rated SELL, any stocks with YTD gains of less than 10%, or any companies based outside of the U.S.
You’ll find the resulting Smaller Bank Investment Screener below. I sorted it in descending order by Weiss Rating, and also included a column for trailing dividend yield so you’d have an idea for the payouts these banks deliver to shareholders.
|Data Date: 12/1/2017|
You can see that TriCo Bancshares (TCBK, Rated “A+”) of Chico, California is at the top of the list. The $964 million bank holding company provides a variety of residential and commercial banking services through 68 traditional and in-store branches around northern and central California. Its shares are up more than 26% year-to-date.
Right below it is Heritage Financial Corp. (HFWA, Rated “A”) of Olympia, Washington. With a market cap of $969 million, HFWA operates 63 branches in its home state and neighboring Oregon. Its shares have ramped 28% this year, and recently took out their all-time high from the peak of the housing and credit bubble in 2006. The underlying banking sector index that KBWB tracks has yet to do so (it remains around 14% below its 2007 peak).
Bottom line: You don’t have to settle for the returns generated by the S&P 500, or even the market-beating returns of the banking sector overall. You can go a step further using our Screener tools to zero in on individual, smaller banks that offer much greater returns than both – and make sure your portfolio includes a few of them!