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Bet on these 5 Midwest Bank Stocks as Fed Rate Hike Looms
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The banking sector always comes into focus when rate-hike speculation heightens, since it typically benefits from higher rates. While much speculation surrounding another rate hike has been doing the rounds in the market following the Dec 2015 hike, the hawkish comments of Federal Reserve Chair Janet Yellen recently sparked optimism.
On Aug 26, in a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, WY, Yellen stated, “Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” However, it must be kept in mind that the Fed’s decision to hike rates depends on two major criteria – improving economy and a 2% inflation.
Several issues including the Brexit-induced uncertainties, U.S. dollar appreciation and the upcoming Presidential election might cause delay in rate hike, nevertheless, the continued positive domestic economic factors such as a recovery in job market and increased household spending certainly increase the odds of a rate hike this December.
Banks benefit from a steep yield curve, i.e. when the spread between long-term and short-term rates is wide. The interest rates on deposits are usually tied to short-term rates while loans are often tied to long-term rates. This means that the potential rise in rates will enable the banks to charge more for loans, leading to an increase in their spread income.
An Investment Opportunity
Currently, out of more than 260 industries on our radar, the Midwest Banks space has a Zacks Industry Rank of 45 (Top 17%). Amid the unpredictable market conditions, it is important to consider the performance of an industry. This is because, more often than not, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. In fact, studies have shown that an average stock in a strong industry is likely to outperform a great stock in a poor industry.
The overall economy of the Midwest region which comprises big cities like Chicago, Detroit, Indianapolis and Columbus is showing signs of an economic revival. The major economic activities of the region are agriculture and manufacturing. Per the Bureau of Labor Statistics, the Midwest region’s unemployment rate was 4.5% in Jul 2016, a marked improvement from the 10% level witnessed during the height of financial crisis in 2008.
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 improvements in the near term, the auto industry is experiencing a boost in demand. With continued overall economic strength, banks with footprint in the Midwest should benefit from increasing loan and deposit balances along with improving asset quality.
5 Stocks to Buy Now
In order to benefit from the potential rise in interest rates, it is time for investors to re-adjust their investment portfolios and add a handful of Midwest bank stocks.
With the help of the Zacks Stock Screener, we have zeroed in on five stocks in the Midwest banking space with a market capitalization over $500 million. All these stocks have witnessed at least 5% positive price movement year to date and sport highly desirable Zacks Rank #1 (Strong Buy) or 2 (Buy).
Wintrust Financial Corporation (WTFC - Free Report) , based in Rosemont, IL, is a financial holding company providing a wide range of services including banking, trust and investment services, commercial insurance premium financing and short-term accounts receivable financing. The company’s EPS growth for 2016 is projected at 16.3% on a year-over-year basis and it carries a Zacks Rank #2. The stock has gained 14.3% since the beginning of the year.
UMB Financial Corporation (UMBF - Free Report) is a financial holding company offering services including banking, payment solutions, asset servicing and institutional investment management. With a Zacks Rank #2 the Kansas City, MO-based company’s EPS growth for 2016 is estimated at 10.7% on a year-over-year basis. The stock has gained over 30% since the beginning of the year.
Chemical Financial Corporation , one of the largest banks in Michigan. Apart from banking services, the company provides trust and investment management services, including financial and estate planning, investment management and custodial services, and employee benefit programs. The company’s EPS growth for 2016 is projected at 9.8% on a year-over-year basis and it carries a Zacks Rank #2. The stock has gained a whopping 35.7% year to date.
Heartland Financial USA, Inc. (HTLF - Free Report) is a diversified financial services company, engaged in providing an array of services including banking, mortgage, investment, insurance and consumer finance services to individuals and businesses. The Dubuque, IA-based company’s EPS growth for 2016 is projected at 8.8% on a year-over-year basis and it carries a Zacks Rank #2. Since the beginning of the year, the stock has gained 12.8%.
First Midwest Bancorp Inc. , based in Itasca, IL, offers commercial, equipment financing, retail, wealth management, trust and private banking products and services. The company’s EPS growth for 2016 is estimated at 9.3% on a year-over-year basis and it carries a Zacks Rank #2. The stock has gained 5.6% since the beginning of the year.
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>
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Bet on these 5 Midwest Bank Stocks as Fed Rate Hike Looms
The banking sector always comes into focus when rate-hike speculation heightens, since it typically benefits from higher rates. While much speculation surrounding another rate hike has been doing the rounds in the market following the Dec 2015 hike, the hawkish comments of Federal Reserve Chair Janet Yellen recently sparked optimism.
On Aug 26, in a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, WY, Yellen stated, “Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” However, it must be kept in mind that the Fed’s decision to hike rates depends on two major criteria – improving economy and a 2% inflation.
Several issues including the Brexit-induced uncertainties, U.S. dollar appreciation and the upcoming Presidential election might cause delay in rate hike, nevertheless, the continued positive domestic economic factors such as a recovery in job market and increased household spending certainly increase the odds of a rate hike this December.
Banks benefit from a steep yield curve, i.e. when the spread between long-term and short-term rates is wide. The interest rates on deposits are usually tied to short-term rates while loans are often tied to long-term rates. This means that the potential rise in rates will enable the banks to charge more for loans, leading to an increase in their spread income.
An Investment Opportunity
Currently, out of more than 260 industries on our radar, the Midwest Banks space has a Zacks Industry Rank of 45 (Top 17%). Amid the unpredictable market conditions, it is important to consider the performance of an industry. This is because, more often than not, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. In fact, studies have shown that an average stock in a strong industry is likely to outperform a great stock in a poor industry.
The overall economy of the Midwest region which comprises big cities like Chicago, Detroit, Indianapolis and Columbus is showing signs of an economic revival. The major economic activities of the region are agriculture and manufacturing. Per the Bureau of Labor Statistics, the Midwest region’s unemployment rate was 4.5% in Jul 2016, a marked improvement from the 10% level witnessed during the height of financial crisis in 2008.
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 improvements in the near term, the auto industry is experiencing a boost in demand. With continued overall economic strength, banks with footprint in the Midwest should benefit from increasing loan and deposit balances along with improving asset quality.
5 Stocks to Buy Now
In order to benefit from the potential rise in interest rates, it is time for investors to re-adjust their investment portfolios and add a handful of Midwest bank stocks.
With the help of the Zacks Stock Screener, we have zeroed in on five stocks in the Midwest banking space with a market capitalization over $500 million. All these stocks have witnessed at least 5% positive price movement year to date and sport highly desirable Zacks Rank #1 (Strong Buy) or 2 (Buy).
Wintrust Financial Corporation (WTFC - Free Report) , based in Rosemont, IL, is a financial holding company providing a wide range of services including banking, trust and investment services, commercial insurance premium financing and short-term accounts receivable financing. The company’s EPS growth for 2016 is projected at 16.3% on a year-over-year basis and it carries a Zacks Rank #2. The stock has gained 14.3% since the beginning of the year.
UMB Financial Corporation (UMBF - Free Report) is a financial holding company offering services including banking, payment solutions, asset servicing and institutional investment management. With a Zacks Rank #2 the Kansas City, MO-based company’s EPS growth for 2016 is estimated at 10.7% on a year-over-year basis. The stock has gained over 30% since the beginning of the year.
Chemical Financial Corporation , one of the largest banks in Michigan. Apart from banking services, the company provides trust and investment management services, including financial and estate planning, investment management and custodial services, and employee benefit programs. The company’s EPS growth for 2016 is projected at 9.8% on a year-over-year basis and it carries a Zacks Rank #2. The stock has gained a whopping 35.7% year to date.
Heartland Financial USA, Inc. (HTLF - Free Report) is a diversified financial services company, engaged in providing an array of services including banking, mortgage, investment, insurance and consumer finance services to individuals and businesses. The Dubuque, IA-based company’s EPS growth for 2016 is projected at 8.8% on a year-over-year basis and it carries a Zacks Rank #2. Since the beginning of the year, the stock has gained 12.8%.
First Midwest Bancorp Inc. , based in Itasca, IL, offers commercial, equipment financing, retail, wealth management, trust and private banking products and services. The company’s EPS growth for 2016 is estimated at 9.3% on a year-over-year basis and it carries a Zacks Rank #2. The stock has gained 5.6% since the beginning of the year.
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>