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Bank on PacWest for Income and Growth

11/06/2015 8:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

I also have a new recommendation for income investors—a bank holding company with more than 80 full-service branches in California—explains Mark Skousen in High-Income Alert.

Like most financial service companies, PacWest Bancorp (PACW) offers checking, savings, credit cards, mortgages, consumer and business loans, and asset management services.

The bank—with $21 billion in assets—is plenty healthy. Revenue topped $800 million over the last 12 months.

Earnings rose 12% in the most recent quarter. And the bank enjoys a whopping 61% operating margin.

But I'm even more excited about its near-term prospects, as we are in a near-perfect environment for bank stocks.

The US economy, as reflected by real gross domestic product, grew 3.7% in the second half. An expanding economy means more consumer business loans and rising asset values.

After eight or nine years of not investing, more businesses are finding that they need to invest in new equipment and infrastructure. That requires credit.

Inflation is negligible, too. That’s a plus for lenders, as they don’t like loans repaid in currency that is worth less. Core inflation, which excludes fuel and food prices, is only 1.3%.

But plunging energy and agricultural prices mean actual inflation is even lower. A strong dollar is disinflationary, too. That’s good for banks.

Joblessness recently hit a seven-year low. More workers means more borrowers. Home sales are hot and so is the homebuilding industry. That creates demand for mortgages. Plus, rising home values create a greater margin of safety for mortgagees.

For all these reasons, I like the outlook for PacWest. And so does Chief Financial Officer Patrick Rusnak. Recent SEC filings reveal that he just purchased more than $200,000 worth of the stock.

In addition to the capital gains potential, you’ll also collect a 4.4% dividend yield here. So pick up PacWest Bancorp at market. And place a protective stop at $36.

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