Avoid the Big Banks, Buy These 3 Small Bank Stocks

by Louis Navellier | January 16, 2014 9:45 am

As we get into earnings season, all eyes are on bank stocks this week. The big bank stocks and a few of the regionals will be reporting earnings, but as we wrote earlier this week almost all of them are ranked as holds or even sells by Portfolio Grader[1]. There are four buys but no strong buys among the money center banks and larger regional bank stocks.

BankVault185 Avoid the Big Banks, Buy These 3 Small Bank Stocks[2]
Source: Flickr[3]

As we saw with the JP Morgan (JPM[4]) and Wells Fargo (WFC[5]) reports on Tuesday, it is just very difficult for the larger banks to generate revenue and profit growth right now, and I really do not see that changing anytime soon. However, that is not to say we should entirely write off bank stocks this earnings season.

When we look at the smaller regional and community banks, we find that there are several stocks ranked as “strong buys.” Focusing on these will allow us to go into this earnings season locked and loaded with the banks that have the very best fundamentals.

First Interstate Bancsystem

First Interstate Bank 185 Avoid the Big Banks, Buy These 3 Small Bank Stocks[6]First Interstate Bancsystem (FIBK[7]) is one of the best-of-the-best bank stocks this earnings season. The company operates 76 banking offices in 42 communities located in Montana, Wyoming, and western South Dakota.

The exciting thing about this bank is that it has substantial exposure in its service area from the economic boom caused by drilling activity in the Bakken shale filed. Earnings are up more than 30% so far this year, and the last quarter showed more than 50% year-over-year earnings growth.

FIBK has posted four consecutive positive earnings surprises, and analysts have been raising their estimates for FIBK stock. The solid performance was picked up Portfolio Grader back in July, and the stock was raised to an “A” grade. FIBK remains a “strong buy”[8] at the current price.

Northfield Bancorp

Northfield Bank 185 Avoid the Big Banks, Buy These 3 Small Bank Stocks[9]Northfield Bancorp (NFBK[10]) is headquartered on Staten Island and has 30 branches located in Staten Island and Brooklyn in New York as well as Middlesex and Union Counties in New Jersey.

The bank has seen earnings explode by almost 50% so far this year and has also posted four consecutive positive earning surprises. NFBK reports earnings on Jan. 24, and I would not be the least bit surprised to see a fifth positive surprise from this bank.

Portfolio Grader upgraded the stock to a “A” back in November, and NFBK remains a “strong buy”[11] at the current price.

Bank of the Ozarks

Bank of the Ozarks 185 Avoid the Big Banks, Buy These 3 Small Bank Stocks[12]Bank of the Ozarks (OZRK[13]) is in the Southern portion of the United Sates and has more than 100 branches scattered across Arkansas, Georgia, Texas, Florida, Alabama, North Carolina and South Carolina.

The exciting news here is that OZRK is buying a bank in Texas that almost doubles its presence in the strong Texas market and adds locations in San Antonio and Houston. The bank has posted positive earnings surprises in three of the last four quarters, and analysts recently raised their estimates for the fourth quarter as well as the full year.

The strong fundamental have been noticed by Portfolio Grader and the stock was upgraded to an “A” this week and remains a “strong buy.”[14]

Endnotes:
  1. Portfolio Grader: http://navelliergrowth.investorplace.com/portfolio-grader/
  2. [Image]: http://investorplace.com/wp-content/uploads/2013/06/BankVault185.jpg
  3. Flickr: http://www.flickr.com/photos/mbrand/3289161214/
  4. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  5. WFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFC
  6. [Image]: http://investorplace.com/wp-content/uploads/2014/01/First-Interstate-Bank-185.jpg
  7. FIBK: http://studio-5.financialcontent.com/investplace/quote?Symbol=FIBK
  8. “strong buy”: http://navelliergrowth.investorplace.com/portfolio-grader/stock-report.html?q=FIBK&submit=submit&type=site
  9. [Image]: http://investorplace.com/wp-content/uploads/2014/01/Northfield-Bank-185.jpg
  10. NFBK: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFBK
  11. “strong buy”: http://navelliergrowth.investorplace.com/portfolio-grader/stock-report.html?q=NFBK&submit=submit&type=site
  12. [Image]: http://investorplace.com/wp-content/uploads/2014/01/Bank-of-the-Ozarks-185.jpg
  13. OZRK: http://studio-5.financialcontent.com/investplace/quote?Symbol=OZRK
  14. “strong buy.”: http://navelliergrowth.investorplace.com/portfolio-grader/stock-report.html?q=OZRK&submit=submit&type=site

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