10 Midwest Bank Stocks Finally Paying Off

NEW YORK (TheStreet) -- We've repeatedly said that the group of 10 Midwest Bank Stocks TheStreet has tracked since March of last year were "long-term" choices for investors, and the group is bearing fruit this year.

Eight of the 10 saw negative returns during 2011, when the The KBW Bank Index (I:BKX) declined 25%. It's no surprise to see all 10 with positive returns so far this year, with the KBW Bank Index rising 26% through Friday's close.

The banking sector has been on fire, with continued positive indications from U.S. Labor Department unemployment reports, and of course, signs of a manufacturing resurgence, especially for the automobile manufacturers, bodes well for the entire Midwest.

The Federal Reserve's annual stress tests have also served as a catalyst for the group, with several of the larger Midwest bank holding companies announcing capital actions last week, including dividend increases and share buybacks.

When we last looked at the group in November, shares of the largest Midwest banking players were facing major pressure as investors anticipated fourth-quarter revenue hits from the Federal Reserve's new caps on debit card interchange fees, as required by the Durbin Amendment to the Dodd-Frank bank reform legislation.

With one full quarter of Durbin behind us, seven of the 10 names trade for 1.5 times tangible book value, or less, according to HighlineFI. All 10 Midwest bank stocks listed here trade for at least 10 times their 2012 consensus 2012 earnings estimates. Some trade much higher, making most of the group relatively expensive, when compare to the "big four" U.S. bank holding companies:

• Shares of Citigroup (C) closed at $36.69 Friday, returning 40% year-to-date, following a 44% decline during 2011. The shares are heavily discounted, trading for just 0.7 times tangible book value, according to HighlineFI, which is a lower multiple than any of the Midwest banks listed here. Citi trades for nine times the consensus 2012 earnings estimate of $3.97, among analysts polled by Thomson Reuters, which is lower estimated 2012 multiple than any of our Midwest group. The consensus 2013 EPS estimate is $4.78.
• Shares of Bank of America (BAC) closed at $9.80 Friday, returning 76% year-to-date, following a 58% drop during 2011. The shares trade for 0.8 times tangible book value, which is also a lower multiple than any of the Midwest banks listed here. The shares trade for a relatively high 14 times the consensus 2012 earnings estimate of 69 cents. The consensus 2013 EPS estimate is $1.19.
• Shares of JPMorgan Chase (JPM) closed at $44.57 Friday, returning 35% year-to-date, following a 20% decline during 2011. The shares trade for 1.4 times tangible book value and for nine times the consensus 2012 EPS estimate of $4.73. The consensus 2013 EPS estimate is $5.51. Last Tuesday, JPMorgan announced it would raise its quarterly dividend by a nickel to 30 cents, and that its board of directors had authorized $15 billion in common stock buybacks.
• Shares of Wells Fargo (WFC) closed at $33.89 Friday, returning 23$ year-to-date, following last year's 10% pullback. The shares trade for 2.2 times tangible book value and for 11 times the consensus 2012 EPS estimate of $3.20. The consensus 2013 EPS estimate is $3.69. Wells Fargo last Tuesday raised its quarterly dividend to 22 cents from 12 cents. The company also said that the Federal Reserve had approved its plan to increase share buybacks over 2011 levels.

Here's the latest on the 10 Midwest picks, again in descending order by forward price-to-earnings ratio:

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