Like it or not, Donald Trump has officially sealed the deal, and will become POTUS number 45. Last-ditch efforts to persuade “faithless electors” to vote against the Republican party line failed miserably. Only two electors voted against the outspoken real estate mogul. In fact, some Democrats attempted to cast their ballots for Bernie Sanders. While the events are no doubt disconcerting for progressives, Wall Street is eagerly awaiting a golden era for bank stocks.
“Big league” names like J.P. Morgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC) have soared in the markets after Trump’s unprecedented victory. Indeed, the financial sector is one of the top beneficiaries of the “Trump Mandate.” The former reality-TV star is expected to loosen regulations that have hindered profitability for bank stocks.
Furthermore, Republicans — who generally favor small government — are in full control of Congress. With the bully pulpit on their side, the “Big Four” bank stocks can’t lose.
But for those investors looking for a little more kick, regional banks offer higher growth potential. As evidence, the benchmark exchange-traded fund Financial Select Sector SPDR Fund (NYSEARCA:XLF) is up 18% since the election. That’s not a bad haul by any standard. However, the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) is up over 26%. Year-to-date, the regional banks fund is up 34% compared to 27% for the majors. Clearly, a bigger market capitalization doesn’t always translate to better performance.
Generally speaking, these mid-cap stocks are better able to adapt to change. Fewer assets typically entails fewer associated liabilities. For regional banks in particular, they are more attuned to their particular markets. They understand customer trends and behaviors and can provide services that are tailor fit. Big bank stocks are often multinational affairs, so their interests are not always aligned within their communities. The small details give mid-cap stocks a critical advantage to stay competitive.
Don’t get me wrong — the “Big Four” bank stocks are going to do just fine under President Trump. But don’t forget regional banks! These three mid-cap stocks pack a powerful punch for your portfolio.
Mid-Cap Bank Stocks to Buy: KeyCorp (KEY)
If there’s any name among regional banks that is going to benefit from the Donald Trump administration, it would be KeyCorp (NYSE:KEY). Headquartered in the great city of Cleveland, Ohio, KEY stock is sure to experience intense scrutiny. After all, Cleveland was the home of the Republican National Convention, the one that eventually set the stage for Trump’s still-unbelievable victory.
But it’s the Midwestern market where KEY engages its primary business that will continuously arouse interest. Trump rallied fervently in this part of the country and it paid off fantastically. Doing what was thought to be impossible, the billionaire blew apart the so-called “blue firewall” of left-leaning states. As the campaign quickly fades into the annals of history, though, Trump needs to make good on his campaign promises. The Midwestern economy simply has to improve, and KEY will be a real-time barometer of his success — or failure.
So far, the indications are very good. KEY shares are up over 26% since the election, an impressive feat even compared against high-running bank stocks. The nature of its technical strength is also quite compelling. This bullishness isn’t just a one-off event. Rather, KeyCorp has experienced a near-unfettered ride since mid-October, raking in a cool 50% profit.
Sure, the “Hamilton Electors” aren’t happy, but KEY investors are walking away with a huge smile on their faces.
Mid-Cap Bank Stocks to Buy: Regions Financial Corp (RF)
Under any Republican administration, Regions Financial Corp (NYSE:RF) would likely do very well against a basket of bank stocks. Multiply that sentiment by two for a Trump White House.
Headquartered in Birmingham, Alabama, RF plies its trade in “Trump Country” — Mississippi, Georgia, Florida and a swath of southern states. In other words, we’ll know soon whether “The Apprentice” star is bringing good jobs to his core constituency by examining RF stock.
As with other regional banks and big bank stocks, the early indications are very positive. After the stunning defeat of Hillary Clinton, RF stock has soared to an equally stunning 33%. On a YTD basis, RF is up more than 50%. At the current rate, shares could clear 60%, making Regions Financial one of the best mid-cap stocks of any industry.
Whether or not the momentum can propel RF well into 2017 is, of course, a question mark. Nevertheless, investors should find a lot of confidence in the financials. On the balance sheet, RF has a very favorable equity-to-asset ratio compared against other regional banks.
Sales wise, RF hasn’t done too well in recent years. But over the past six quarters, sales growth is averaging more than 4% on a year-over-year basis, which is a significant improvement.
It looks like the country and regional banks are turning a new corner, and that has got RF shareholders excited.
Mid-Cap Bank Stocks to Buy: Citizens Financial Group (CFG)
Part of the reason why consumers eschew regional banks in favor of their bigger brethren is the myriad of options that are not available at smaller branches. With convenience being an almost expected factor, not offering consumer-centric technologies can be deal-killer for mid-cap stocks. Citizens Financial Group Inc (NYSE:CFG) is trying to change the perception of what regional banks are all about.
Announced just recently on Dec. 20, CFG will “offer digital lending capabilities to small business customers through a collaboration with Fundation Group LLC,” according to Business Wire. Through the partnership, small business owners can apply for loans and lines of credit directly through the CFG website. The time savings could be a huge benefit for such owners, who typically expend enormous hours to keep their business moving.
Additionally, approval is granted almost immediately, and loans can be funded within a few days.
The potential for increased profitability towards CFG stock isn’t lost on Wall Street. Like most other bank stocks, it popped up after Trump emerged victorious. Since the election, CFG has sailed to nearly 32%, just a hair below RF stock. At the present rate, don’t be surprised to see the company close out the year at 45%, perhaps even 50% returns.
While regional banks like Citizens Financial may not always get the glitzy advertisements, ignoring them would be a serious mistake.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.