Last week, Federal Reserve Chair Jerome Powell said there will be more interest rate hikes ahead to help battle inflation.
This means the interest collected on loans is going even higher from here.
That’s great news for certain regional banks that rely on interest for income.
Using Chief Investment Strategist Adam O’Dell’s proprietary six-factor Stock Power Ratings system, I found a “Strong Bullish” company:
- It’s a full-service regional bank in Virginia and North Carolina.
- The stock is 5.6% off its 52-week high and has solid upward momentum.
- It rates 97 out of 100 on our Stock Power Ratings system.
Here’s why the regional bank stock I share with you today will climb higher from here.
The Summer of Banks
The Fed’s interest rate hikes have helped banks because a higher rate means they make more money on interest payments.
The national average interest rate on a 30-year fixed rate loan was 5.55% on August 25, according to Freddie Mac. That number was only 3.22% on January 5.
That means a bank can now make $5,550 on a $100,000 loan that was going to pay out $3,220 seven months ago.
When you think about how many loans a bank oversees, those small increases add up quick!
It translates into bank stocks outperforming the broader market:
Regional Bank Stock to Buy: Carter Bankshares Inc.
Big establishments like Bank of America have other sources of income. Trading stocks is one example.
But smaller institutions rely on loan interest to generate revenue.
Carter Bankshares Inc. (Nasdaq: CARE) is a regional bank operating in Virginia and North Carolina.
The company started in 1974 and offers all the traditional services its Big Bank brothers do … including full-service mobile banking.
Its connection to the region has led to steady revenue growth and great prospects for the future:
Last year, CARE earned $136 million in total annual revenue.
By 2024, that number is expected to jump 35.4%!
Now, let’s look at this regional bank stock’s recent performance.
CARE Hammers Its Banking Peers
Despite the broad market downturn, CARE stock is up 41.3% over the last 12 months as I write.
The regional bank stock blows away its banking peers — which are down 10.9% over the same time.
CARE is now 5.6% off its 52-week high set in April 2022. It has weathered the market sell-off well.
Carter Bankshares Inc. Stock Power Ratings
Using Adam’s six-factor Stock Power Ratings system, CARE scores a 97 overall.
That means we’re “Strong Bullish” on this regional bank stock and expect it to beat the broader market by at least three times over the next 12 months.
Carter Bankcshares Inc.’s Stock Power Ratings on August 29, 2022.
CARE rates in the green on five of our six factors:
- Size — With a market cap of $418.8 million, Carter Bankshares scores a 91 on our size factor. When looking at two stocks with similar ratings on the other five factors, smaller stocks historically outperform their larger counterparts.
- Value — CARE scores an 85 on value with a price-to-sales ratio of 2.59, compared to its sector peers’ average of 2.78. CARE’s price-to-book value ratio is 1.25, while the U.S. banking industry average is 1.2. This means CARE is right in line with its peers on that metric.
- Volatility — CARE is up 41.3% over the last 12 months with little downside. It scores an 84 on volatility.
- Growth — CARE’s one-year annual earnings-per-share growth rate is 168.7%, and its sales growth over the previous quarter is 4.5%. Carter Bankshares scores a 78 on growth.
- Momentum — CARE is up 30.8% since June. It scores a 76 on momentum.
CARE earns a “Neutral” 55 on quality, but its operating margin is 26.4% compared to the banking industry average of 33%. A “Neutral” rating means the company is right in line with the market average … which isn’t a bad thing!
Bottom line: Fed interest rate hikes spell big profits for banks of all sizes.
This means banks like Carter Bankshares will earn more money on the interest they charge on their loans.
It’s why CARE is a fantastic regional bank stock to have in your portfolio.
Safe trading,
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Stock Power Podcast, as well as the Marijuana Market Update. He’s also a certified Capital Markets and Securities Analyst through the Corporate Finance Institute. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.
