The overall banking sector is not likely to perform well in the near term given the global growth concerns and low client activities. But before you decide to totally avoid banking stocks, there are many smaller regional banks that are set to outperform. In this article, we will discuss about the prospects of Midwest banks and then screen some likely winners.
Before we go into detail, let’s check the overall economy of the Midwest region, which comprises big cities like Chicago, Detroit, Indianapolis and Columbus. The major economic activities of the region are agriculture and manufacturing.
The region is showing signs of an economic revival. Per the Bureau of Labor Statistics, the Midwest region’s unemployment rate was 4.8% in Feb 2016, a marked improvement from the 10% level witnessed during the height of financial crisis in 2008. Also, the figure is slightly better than the national average of 4.9% for the same month.
Many Midwest banks, which once had to suffer due to deteriorating financial health of manufacturing and agricultural firms, are on the growth path due to the revival of their regional economy.
Although the agriculture sector is not likely to witness improvement in the near term, the auto industry is witnessing a boost in demand attributable to overall economic growth in the region. Detroit, the major auto hub, which struggled due to a decrease in U.S. manufacturing and sharp decline in demand for vehicles in the follow up of the financial crisis, is gradually recovering.
Therefore, banks with a footprint in the Midwest region will definitely benefit from the revival of the auto industry. Further, with the Federal Reserve providing the timeline for the rate hike and overall growth in the nation’s economy, banks will witness top-line improvement. Also, banks’ financials will get a boost from improving asset quality and lessening of delinquent loans.
So it's time for you to go ahead and select a handful of Midwest banking stocks.
How to Pick Favorable Banks
With several banks based in the Midwest region, it is not that easy to pick a few banking stocks that will enhance your investment returns.
With the help of the Zacks Stock Screener, we have chosen Midwest banking stocks that have Zacks Rank #1 (Strong Buy) or #2 (Buy) and estimated earnings growth of 5% or above for 2016. Further, with the help of our Style Score System, we narrowed down the list to ensure a Value Style Score of ‘A’ or ‘B.’
Here are 5 Midwest banks to add to your portfolio:
First Interstate Bancsystem Inc. FIBK, based in Billings, MT, provides commercial and consumer banking services in Montana, Wyoming and South Dakota.
Zacks Rank #2
Value Score: ‘A’
Market Cap: $1.27 billion
Earnings Growth for 2016: 8.25%
Chemical Financial Corporation CHFC, headquartered in Midland, MI, offers banking and fiduciary products and services to residents and business customers in Michigan.
Zacks Rank #2
Value Score: ‘B’
Market Cap: $1.36 billion
Earnings Growth for 2016: 5.51%
Independent Bank Corporation IBCP, based in Grand Rapids, MI, mainly serves rural and suburban communities located across Michigan's Lower Peninsula.
Zacks Rank #2
Value Score: ‘B’
Market Cap: $305.05 million
Earnings Growth for 2016: 9.88%
Mercantile Bank Corp. MBWM, headquartered in Grand Rapids, MI, provides commercial banking services for small-to medium sized businesses and individuals from offices located in Western and Central Michigan.
Zacks Rank #2
Value Score: ‘B’
Market Cap: $371.88 million
Earnings Growth for 2016: 9.57%
MainSource Financial Group, Inc. MSFG, based in Greensburg, IN, offers a wide-range of financial services in Indiana, Illinois, Ohio, and Kentucky.
Zacks Rank #2
Value Score: ‘B’
Market Cap: $449.82 million
Earnings Growth for 2016: 10.80%
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