Top Picks 2016: Banc of California

01/21/2016 7:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Our Top Pick for conservative investors is a California-based bank that offers strong operating growth, outstanding share-price momentum, and rising profit estimates for the year ahead, asserts Richard Moroney, editor of Upside.

Banc of California (BANC) runs more than 100 branches, many of them clustered in the Los Angeles area. Revenue has climbed in 15 consecutive quarters, while operating profit margins have expanded in each of the past five quarters.

Although dividend growth has not been a point of emphasis recently, the stock offers a plump yield of 3.2%. Shares have generated a 29% return in the past year.

Aside from anticipation over the Fed's rate hike, 2015 was a fairly placid year for US regional banks. The number of bank mergers held roughly flat and the industry is on pace for the fewest bank failures since 2007.

As the Fed begins to move interest rates gradually higher, Banc of California seems capable of increasing rates charged for loans at a faster pace than what is pays for deposits.

The stock has been weighted down by bearish sentiment. None of the five analysts covering BANC rate the stock better than a Hold.

June-quarter results had raised concerns about swelling expenses. But the bank got a better grip on expenses last quarter. Its total deposit base has also surged 50% over the past year.

By growing its commercial bank, the company has reduced its reliance on the cyclical mortgage business, now generating just 22% of pretax income.

The consensus projects 13% higher per-share profits in 2016 and analyst estimates have risen in the past 30 days. We rate the stock a Best Buy.

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