The West Michigan Stock Index decreased 8.4% in 2022, but that performance was relatively good compared with the most widely followed stock market indices. 

Table 1 below highlights both 2022 and 2021 annual returns for several indices.

The West Michigan Index consists of 15 publicly traded companies headquartered in West Michigan. Each company’s return is weighted by its market value -- the number of shares of common stock outstanding multiplied by the company’s stock price. The index matches the weighting methodology used by the NASDAQ Composite Index. The Dow Jones Industrial Average is price weighted, while the S&P 500 Index uses a somewhat complex method dividing the sum of the market values of each component stock by a proprietary index divisor.

Stock investors lost money across all indices last year. It should surprise no one who follows stock prices that high-tech stocks tanked.  Stocks such as Microsoft, Google, Facebook owner Meta Platforms, and Amazon all fell considerably.  Elon Musk became the first person to lose $200 billion as Tesla stock collapsed. As a result, the tech-heavy NASDAQ Index suffered the greatest decline in 2022 of those indices shown in Table 1. Even though decreased prices of West Michigan stocks sting, it is obvious that it could have been much worse.

There is not a single company comprising the West Michigan Stock Index (WMI) that also is a component of the Dow Jones Industrial Index. Accordingly, comparing West Michigan company returns with the Dow is not appropriate. Likewise, only three WMI companies – Kellogg, Stryker, and Whirlpool – are components of the S&P 500 Index, minimizing the appropriateness of comparing returns with that index. That leaves the NASDAQ Composite Index as the most appropriate benchmark for comparing the WMI, and by that index, West Michigan-based stock returns don’t look that bad. 

Table 2 below ranks the fifteen companies comprising the WMI by their 2022 returns. 

The West Michigan Stock Index weights each stock’s return by its market capitalization. Accordingly, the higher a stock’s price and the more shares outstanding, the higher the weight, and the greater the impact that stock has on the Index. For instance, Meritage Hospitality Group Inc. has about 6.6 million shares outstanding, while Stryker has 378 million, about 57 times more shares. Further, Stryker’s stock price is about 12 times greater than Meritage. These two factors give Stryker a market weight of nearly 700 times that of Meritage. That explains why the WMI Index’s performance is dominated by the largest corporations: They have the largest market capitalizations.

The 2022 performance of each of the fifteen companies comprising the WMI is described below. Most of the discussion is based on information found in the most recent quarterly earnings reports. Companies are grouped by industry or otherwise listed alphabetically. 

There are four banks headquartered in West Michigan: Independent Bank Corporation, Macatawa Bank Corporation, Mercantile Bank Corporation, and ChoiceOne Financial Services, Inc. Overall, 2022 was a good year for them. Three of them saw their stock prices rise, while the fourth, Mercantile Bank Corporation, fell 4.4%.  Collectively, that’s good performance considering stock markets had their worst year since 2008.

There are several reasons to love these banks. Not only were their returns among the best stocks in the West Michigan Index, but all of them pay high levels of dividends. The ratio of dividends per share to stock price is call the dividend yield. Macatawa Bank had a dividend yield of 2.9% making its total return for the year 28.1%. The three other banks had yields between 3.6 and 3.8%. In contrast, the S&P 500 Index had a dividend yield of 1.7%.  Clearly, dividends boost returns and are a reason to buy bank stocks.

Finally, compared with historical values, West Michigan headquartered banks are underpriced. That can be inferred from their price/earnings ratios which are simply the ratio of current stock price to earnings per share. Over the past twenty years, local banks usually have P/E ratios of around 15, yet they are currently much lower.  Macatawa is the highest priced with a ratio of 13, but the three other banks have P/E ratios from 8.4 to 10.4.  There is reason for optimism: prices will rise if bank P/E ratios increase to their 20-year averages.

ChoiceOne Financial Services, Inc.

ChoiceOne Financial Services, Inc. is the holding company for Sparta-based ChoiceOne Bank and has 35 offices and $2.4 billion of assets. The Bank had a good year. Its stock price rose nearly 10% during 2022. Both its third quarter and nine-month earnings were up about 3% compared with the same periods in 2021, and its third quarter loan portfolio grew by 18% on an annualized basis.

ChoiceOne was again named the best small bank in Michigan by Newsweek for 2023, the third consecutive year the bank has received this designation. To be considered for the designation, banks must have less than $10 billion in assets, have enough branches to rank in the top five within its state, and be headquartered in the state. Over 50 factors are considered, and only one bank in each state is awarded the designation.

Independent Bank Corporation

Grand Rapids-based Independent Bank Corporation, the holding company for Independent Bank, has 59 branches, all in Michigan, and nearly five billion dollars of assets. Its stock price rose by five cents in 2022. That’s not much, but compared with overall financial market performance in general, it’s an acceptable performance.

In its third quarter ending October 18, earnings were up 11% and its loan portfolio grew by 18% on an annualized basis. The bank’s P/E ratio is the lowest among the four West Michigan-based banks, and that likely reflects the fact that through the first nine months of 2022, earnings per share was about one percent lower than the comparable period in 2021. 

Independent Bank authorized a new stock purchase plan for 2023, authorizing it to repurchase up to 1.1 million shares, about 5% of its issued shares. As is usually the case with share repurchase plans, they are not required to purchase any shares but will do so depending on share price and economic conditions.

Macatawa Bank Corporation

Macatawa Bank Corporation is the holding company for Macatawa Bank. The Holland, MI-based bank has 26 full-service branches across three West Michigan counties: Kent, Ottawa, and Allegan and has $2.9 billion in assets. 

As 2021 came to an end, analysts were optimistic about the bank’s future performance. In 2022, commercial loans grew by 30% in the third quarter and by 82% relative to the 2021 second quarter. Further, total deposits grew rapidly.  By almost any measure, Macatawa Bank did well in 2022. In the latest quarter, revenue rose 39% while earnings rose 37%. Investors liked that performance and bid up the stock price by 25%.

Mercantile Bank Corporation

Grand Rapids-based Mercantile Bank Corporation is the holding company for Mercantile Bank of Michigan. The bank has just shy of $5 billion of assets and has 46 banking offices.

Looking back, the bank had an outstanding year in 2021, ending the year with its highest stock price in nearly 14 years and setting the bar high for 2022. Yet, its third quarter financial results were described as robust. Both revenue and earnings rose approximately 6%, and that was higher than consensus estimates by analysts. The bank’s stock price quickly rose by over $4 per share on the news, but then fell back a little by the end of the year, dragged down by the general fall in stock prices as worries about a slowing economy became more acute.

The office furniture industry has been struggling to make money since the COVID pandemic struck in 2020. Now, three years later, related issues are still major obstacles. The industry was hurt by the huge number of workers who left their offices and began working from home. Although the pandemic has turned into less of an issue, many workers still work from home, or are hybrid workers, coming into their work offices only part time. This past year has seen a near collapse in the outlook for many high-tech firms, and as a result, tens of thousands of employees have lost their jobs further reducing the need for office space. 

Private office real estate as an investment has fallen from 34% of portfolios at the end of 2019 to 23% by the end of June 2022 according to the National Council of Real Estate Investment Fiduciaries. Why? The demand for commercial real estate has decreased, and that’s bad news if you are trying to sell office furniture.  Making matters worse, an economic slowdown is possible in 2023, and if that happens, spending on office furniture systems will be postponed.

West Michigan is home to two major office systems companies whose stock is publicly traded: Steelcase and MillerKnoll, Inc

MillerKnoll, Inc.

Zeeland, MI-based Herman Miller changed its name to MillerKnoll, Inc in 2021 reflecting its $1.8 billion merger with Knoll, Inc. 

The company’s stock was about $50 per share in June 2021 but has declined steadily since then, ending 2022 at $21 per share. The 18-month-long fall made the company the second worst performer in the West Michigan Index. The company lost $0.37 per share in the most recent quarter, and the company isn’t optimistic about the rest of its fiscal year. Orders fell in the third quarter, but MillerKnoll was able to raise prices to offset the impact on revenue.  That certainly isn’t a ringing endorsement for an end to the issues facing the company. Nevertheless, executives are optimistic about next year. 

Steelcase Inc.

Steelcase is a speculative stock investment right now. Here is how the company’s stock has done over the past three years:

2022   -39.7%
2021   -13.5%
2020   -33.8%

Steelcase had raised its stock dividend on 6/23/2021 from $0.40 to $0.58 per share even though the company wasn’t earning enough to justify the increase. Sure enough, the dividend was reduced back to $0.40 in September 2022. Then, at the end of December, Motley Fool–a source of investment information and advice–included Steelcase on its list of “Three Stocks to Avoid This Week”. If there is any good news, it’s that the company is implementing a plan to reduce expenses by $30 million annually.

Gentex Corporation

Zeeland, Michigan-based Gentex is a supplier of digital vision, connected car, dimmable glass, and fire protection technologies. The company’s stock decreased nearly 21% during 2022.

Supply chain issues, labor availability, and customer order readjustments caused sales to decline by over 750,000 units more than forecasted. In addition, problems sourcing advanced electronic components and customer order fluctuations hurt earnings in 2022.

The company is optimistic about the future, however. Third quarter revenue rose 24%. Profit was nearly $73 million, but earnings per share fell by a penny. The company projects 2023 revenue growth of 15-20%. It also projects an increase in its gross margin beginning in Q4 and continuing into 2023 as it is able to raise prices.

One fascinating aspect of Gentex is its debt-to-equity ratio. This ratio is a measure of how many dollars the company has borrowed for every dollar of equity. A lower value is generally better than a higher value. It’s not unusual for a manufacturer to have a ratio of 1 or maybe even 2. Gentex has a value of 0.10. Without debt, a company cannot go bankrupt.

Gentex remains the most active West Michigan company repurchasing its own stock. It continued to repurchase shares in 2022, purchasing 3.3 million shares through the first 9 months with 21.5 still available for purchase in its most recent multi-year repurchase plan.

Kellogg Company

Battle Creek-based Kellogg manufactures and markets ready-to-eat cereal and convenience foods. Its stock price has been choppy over the past nine years, mostly trading in the $60 per share range, but 2022 was different. Beginning in May, its price rose to $70 and stayed in the low to mid-70s for the rest of the year.

Kellogg raised its full-year 2022 sales and earnings per share projections to 10% and 3%, respectively from earlier projections of 7% and 2%. It also has been able to offset higher expenses by raising its prices. Overall, Kellogg has been remarkably successful in coping with inflation and supply chain problems.

The company made a major announcement in June.It plans to split into three different companies: North American Cereal, Plant Company (Kellogg’s plant-based foods), and Global Snacking Company. Kellogg says the spin-offs will, “create greater strategic, operational, and financial focus for each company and its stakeholders, and will build on Kellogg's current momentum.” Yes, whatever that means. Yet, it’s no secret that Kellogg’s future successes will come from its snack products, not cereal and probably not from plant-based products. The spinoffs will remove these two under-performing divisions from Kellogg. The spinoffs will be completed by the end of 2023.

Meritage Hospitality Group Inc.

Grand Rapids-based Meritage is the nation’s largest owner of Wendy’s restaurants, as well as the owner of several other types of restaurants. In total, the company owns 353 restaurants and plans to open 51 new Wendy’s restaurants by the end of 2025 and spend $100 million building 50 new Taco John’s restaurants by the end of 2026.

Through the first nine months of 2022, sales increased 8.9%, but profits fell from $15.2 million to $9.8 million.  That suggests expenses increased significantly, and they did. The biggest problem facing Meritage is that inflation is increasing faster than the company can raise its prices.

An interesting factoid about Meritage is that directors own 67% of common stock shares. Such concentration of ownership avoids many problems.

Perrigo Corporation PLC

The company describes itself as a consumer self-care company, developing and selling health and beauty products.

The company’s stock price has fallen for three consecutive years. Despite a considerable amount of optimism at the start of 2022 that the company would be doing much better, it didn’t happen. For example, in the most recent quarter, earnings per share was $0.56, but that was less than the consensus estimate of $0.66. Perrigo’s stock price promptly fell 15% on the news. The company has been hurt by unfavorable foreign currency exchange rates (the U.S. dollar has been exceptionally strong, reducing the value of profits earned in foreign currencies and then transferred back to the U.S. and converted to dollars), and by labor shortages and decreased demand for its products. 

Nonetheless, Perrigo is finally earning a profit after two years of losses. That provides a little optimism for 2023.

SpartanNash Company

Grand Rapids-based Spartan Nash had a good 2022, finishing with the second highest stock market return in the West Michigan Index. In fact, its stock has been second best for three years in a row. SpartanNash Company distributes and retails grocery products. The company was formerly known as Spartan Stores, Inc. and changed its name to SpartanNash Company in November 2013.

The company’s price was near $38 per share when it released its third quarter earnings report on November 9. It reported increased sales of 10.8%, but earnings per share were $0.26 vs. $0.42 a year earlier. Even though the company raised its forecast for the entire year, its stock price dropped about $7 per share and remained there through December.

UFP Industries, Inc.

Grand Rapids-based UFP Industries designs, manufactures, and markets wood and wood substitute products.  Overall, the company’s stock price finished the year with a burst. For instance, in the third quarter, the company’s sales increased 11%, its net income rose 37%, and earnings per share were $2.68 compared with $1.94 a year earlier. All these numbers were much higher than consensus estimates, and investors were pleased. The company’s stock price jumped up from about $70 to the lower $80s after the release of the third quarter report. 

Earlier in the year, investors were concerned that much higher mortgage interest rates and perhaps a looming economic slowdown, if not a recession, would hurt the company’s ability to sell building products. But its great third quarter performance has added a good dose of optimism to UFP’s 2023 outlook. 

Whirlpool Corporation

Whirlpool Corporation manufactures and markets home appliances and related products. In somewhat of a surprise, Whirlpool had a terrible year, culminating in a nearly 40% fall in its stock price. As 2022 began, most stock analysts were bullish on Whirlpool’s outlook. The company earnings had been higher than consensus estimates for thirteen consecutive quarters, and its return on equity was stunningly high at 43%.

Then two major problems developed: demand fell, and inflation soared. Central Banks raised interest rates in efforts to reduce inflation. Often, if inflation is to be tamed, interest rates must be raised to levels so high that economic growth slows, often to recession levels. And that’s exactly what hurt Whirlpool in 2022. 

In its most recent quarterly report, the company noted that production fell 35% due to reduced demand in both its domestic and international markets. Furthermore, inflation in raw materials took its toll. Full year 2022 demand was projected to fall 9%, and Whirlpool reduced its estimate of 2022 full-year earnings per share to -$5. Still, the company expects these issues to be temporary and is prepared for a rebound

Wolverine World Wide, Inc.

Rockford, Michigan-based Wolverine World Wide, Inc. designs, manufactures, sources, markets, licenses, and distributes footwear, apparel, and accessories. It sells its products in over 170 countries. 

The company’s stock was the worst 2022 performing stock in the West Michigan Index, falling 62%. Third quarter earnings per share fell 14%, and that was followed by a 34% fall in the company’s stock price, with the price eventually dropping below $10 per share. The company gave these reasons for its lower earnings: worldwide slowing economic growth, a backlog of customer inventories, higher retail promotion expenses, and the strong U.S. dollar. 

Wolverine announced in early December several actions to strengthen its 2023 financial performance. It plans to divest two underperforming brands, Keds and Wolverine Leather, improve supply chain synergies, reduce its workforce, and reduce 2023 expenses by nearly $100 million. Investors now are a little more optimistic.