Zacks Industry Rank Analysis Highlights: Chemical Financial, Community Trust, People's Bank of Ohio, American National Bankshares and Vist Financial

For Immediate Release

Chicago, IL – November 4, 2011 – Stocks featured in this week’s Zacks Industry Rank analysis include Chemical Financial (CHFC - Snapshot Report), Community Trust (CTBI - Snapshot Report), People's Bank of Ohio (PEBO - Snapshot Report), American National Bankshares (AMNB - Snapshot Report) and Vist Financial (VIST - Snapshot Report).

Zacks Industry Rank Analysis is written by Dirk Van Dijk, CFA, Chief Equity Strategist, Zacks.com.

Think Small When It Comes to Banks

We break up the overall bank sector into five regional groupings, plus a “multi-regional” group that is mostly the too big to fail (TBTF) firms.  We also have a separate “industry” for the foreign banks.

The five regional groupings are all showing up as attractive on the Zacks Industry Rank. The domestic TBTF groups is decidedly in the middle of the pack, and the foreign “industry” looks downright awful on the Zacks Rank.

All of the regional groupings are bigger than average by number of firms, and most are among the very biggest industries (by number of firms). Given the law of large numbers, it is very hard for a huge industry to find itself at the very top, or the very bottom of the industry list. If a big industry gets close to either end, it is worth paying attention.

The Midwest region “industry” is the strongest of the bunch, coming in 12th place with an average Zacks rank of 2.44, down from 2.47 last week and a two spot improvement. The Midwest group has 36 firms in it. Normally industries in the top 15 have fewer than ten firms in them, and often much lower than that.

The West banking “industry” was the next best, in 23rd place, a six-spot improvement as its average rank fell to 2.53 from 2.60. The West “industry” has 40 stocks in it. The Southwest “industry” is by far the smallest of the bunch, but with 12 firms in it is still substantially bigger than the median-sized industry. It was just behind the West in 27th place with an average rank of 2.58, but that marks a very big 34 spot improvement as the average rank fell from 2.75 last week.

The final two groups are the biggest of all: the Southeast has 78 members and the Northeast has 58. Their rank is not that impressive in absolute terms, coming in at 51 and 58 respectively, but they are very large, and they fit in with the overall theme. The Southeast improved nine spots on the week as its average rank fell to 2.71 from 2.79. The Northeast “industry” improved by nine spots, as its average rank fell to 2.74 from 2.76.

If the Zacks Ranks were distributed randomly, one would expect that only 5% of the members of these “industries” would earn the coveted Zacks #1 Rank (Strong Buy). Instead, 17 of the total of 224 (7.6%) have earned that distinction. If it were random, only 15% would hold Zacks #2 Ranks (Buy) but actually 73, or 32.6%, hold it. In other words, there are attractively ranked small banks in every area of the country.

A Cornucopia of Lesser-Known Names

You have probably never heard of most of these banks. Some of them you might recognize if they happen to operate in your town, but it is a fair bet that the names of most of them have never, or at least very rarely been uttered on CNBC. That, however, does not mean that they cannot be good investments.

This is a group that cries out for a “package approach.” None of the banks on either of the lists are large-caps, and even the mid-caps are on the small side of the mid-cap range. In fact, taking the two lists together, sub-$100 million micro-caps outnumber firms with market caps over $1 billion by 30 to nine.

You can create a “synthetic” national bank that avoids the regional risk that these banks pose by having a portfolio made up of small positions in many of these names, rather than just taking one normal-sized position. Given the thin trading volumes in these names, even an individual investor could impact the price if they tried to take a big potion in just one of these names.

The valuations are for the most part reasonable, and while I don’t show the FY2 over FY1 growth on the tables, you can get a good idea of it by looking at how much lower the P/E for next year is relative to the P/E for this year. Most are expecting solid but not spectacular growth, and you are paying a reasonable price for those earnings. Not rock bottom for the most part, but very reasonable.

Unlike the big guys, most of these firms are free to pay whatever dividends their boards deem appropriate (the TBTF ones need to ask permission from the Fed, and the Fed has not been inclined to say yes for most of them, and should not for quite some time to come). Many of these small-fry banks provide very attractive dividend yields.

Most are seeing big increases in their estimates for both this year and next. However, just as a word of warning, they tend to be thinly covered, so an individual analyst raising his or her numbers for the firm has a much bigger impact on the mean estimate than is the case with the big well-covered banks. Still, higher earnings will allow these banks to pay higher dividends in the future, so if you do buy them and tuck them away, there is a very good chance that your yield on cost will be much higher a few years down the road than is indicated on the tables below.

The Zacks Rank is, however, better used as a short-term timing/trading tool, not as a guide towards long-term investing. Still, even the longest-term investor wants to avoid an immediate drop after he buys, and will enjoy a pop shortly after she puts the order in. The combination of an attractive Zacks Rank, and a low or at least moderate valuation is what you want to look for.

If you want a bank for your portfolio, think small. A package of, say, Chemical Financial (CHFC - Snapshot Report), Community Trust (CTBI - Snapshot Report), People's Bank of Ohio (PEBO - Snapshot Report), American National Bankshares (AMNB - Snapshot Report) and Vist Financial (VIST - Snapshot Report) probably has just as much upside potential, and a lot less risk, than a single position in Citigroup. You will also enjoy a much nicer dividend stream along the way. Right now, when it comes to the banks, small is beautiful.

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Contact: Dirk Van Dijk, CFA
Company: Zacks.com
Phone: 312-265-9211
Email: pr@zacks.com
Visit: www.Zacks.com

Read the full analyst report on CHFC

Read the full analyst report on CTBI

Read the full analyst report on PEBO

Read the full analyst report on AMNB

Read the full analyst report on VIST