The West Michigan Stock Index rose 20 percent in 2023, a performance comparable to the most widely followed stock market indices. 

 Table 1 below highlights annual returns for several indices during the years 2021 through 2023.

Note: The West Michigan Index consists of 16 publicly traded companies headquartered in West Michigan. [Note that last year’s WMI contained 15 companies. The increase this year is due to changes with the Kellogg Company as described later in this article.] 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 complex method of dividing the sum of the market values of each component stock by a proprietary index divisor.
Table Description: Table 1 provides the annual returns for the West Michigan Index along with three other national indices for 2021, 2022, and 2023 as well as the three-year compound return for each.

Last year was a great year for all four stock indices shown above.  The lowest-performing index, the DJIA, generated a 13.7% return, while at 43.5%, the NASDAQ Index increased the most.  The two other indices, the S&P 500 Index and the WMI, had returns between these two extremes.  The performance of all four indices represented a rebound from 2022’s index returns, all of which were negative.  Over past decades, long-term stock investors who buy and hold without churning their diversified portfolios would have earned compound annual returns in the upper single digits.  By that measure, all four indices outperformed investor expectations in both 2023 and the three years including 2021 through 2023.

Table 2 below ranks the sixteen companies comprising the Index by their 2023 returns.  Individual company returns varied from Steelcase’s 91.2% to SpartanNash’s negative 24.1%. 

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 6.5 million shares outstanding, while Stryker has 380 million, about 58 times more shares.  Further, Stryker’s year-end stock price is more than fifteen times greater than Meritage’s.  These two factors give Stryker a market weight of about 870 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 2023 performance of each of the sixteen 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. 

Four banks are included in the West Michigan Stock Index: Choice One Financial Services, Inc., Independent Bank Corporation, Macatawa Bank Corporation, and Mercantile Bank Corporation. Stock prices of all four banks followed the same pattern in 2023. Prices began falling in March as the banking industry became one of the hardest hit sectors by the end of the Summer, then began recovering in late October, rose sharply through the end of the year, and ended with their highest prices of the year.

That pattern followed investor attitudes about the economic outlook. It seemed obvious that a recession was imminent early in 2023. Recessions reduce the demand for bank loans and increase loan defaults causing both bank earnings and stock prices to fall. However, by late October, economic indicators strongly suggested there would not be a recession anytime soon, and that sent financial market prices up sharply. 

Bank investors should be optimistic about 2024. Loan demand should remain strong, as should earnings.  Most notably, price/earnings ratios for all four banks in the WMI are significantly lower than their historical averages.  They range from Mercantile Bank’s 8 to ChoiceOne’s 10. Eventually, those ratios will revert to their long-term averages, a possibility in 2024, and if that happens, expect bank prices to rise more than they did in 2023.

ChoiceOne Financial Services, Inc.

Sparta-based ChoiceOne Financial Services is the holding company for ChoiceOne Bank. Its stock price rose by one percent last year. Through the first nine months of 2023, its earnings per share was $2.12 versus $2.26 in 2022. Investors expect the economy in the fourth quarter and in 2024 to be much better than the first three quarters of 2023, and that optimism led them to bid up the stock price.  If investors are correct, the stock price will keep rising in 2024.

ChoiceOne has thirty-seven branches, $2.6 billion of assets and celebrated its 125^th Anniversary in 2023 by ringing the opening bell at the Nasdaq MarketSite Tower in New York City on October 30. It continues to be named one of America’s Best Banks by Newsweek.

Independent Bank Corporation

Grand Rapids-based Independent Bank Corporation, the holding company for Independent Bank, had a stock price well below its January 2023 price throughout most of the year. It wasn’t until the last two weeks of 2023 that its stock price finally rose above its early January price, finishing 8.8 percent higher than at the start of the year. 

Over the first nine months of 2023, the bank earned $2.14 per share versus $2.27 the prior year. As was the case with ChoiceOne, the economy is in much better shape now than earlier in 2023, and investors expect the bank to show significant improvement in earnings in 2023’s fourth quarter and beyond.

 The bank has $5.2 billion of assets and 62 offices across Michigan’s Lower Peninsula.

Macatawa Bank Corporation

Stockholders of Holland-based Macatawa Band Corporation, the holding company for Macatawa Bank, experienced the same price pattern as all four banks during 2023; Its stock price peaked in January, and then spent the rest of the year at a lower price until the last two weeks of December when the price quickly rose to a 52-week high, 2.3 percent higher than at the start of the year.

Unlike either ChoiceOne or Independent Bank, through the first three quarters of the year, Macatawa Bank’s earnings per share increased significantly compared with 2022. It earned $0.98 per share versus $0.66 the year earlier.  Upon the release of its third-quarter earnings, its stock price steadily rose to the end of the year.

 The bank has $2.8 billion of assets and 26 full-service branches across three West Michigan counties:  Kent, Ottawa, and Allegan.

Mercantile Bank Corporation

Grand Rapids-based Mercantile Bank Corporation is the holding company for Mercantile Bank. Its stock price pattern was similar to other West Michigan banks, though its price began rising sharply in mid-October. By the end of the year, Mercantile’s price hit an eighteen-year high, up 20.6 percent from a year earlier.

 The bank has 45 banking offices and $5.2 billion in assets. It reported a robust nine-month earnings per share of $3.89 compared with $2.48 over the same period in 2022. Surprisingly, the bank also reported growth in its commercial loan and residential mortgage portfolios despite higher interest rates. Mercantile ended 2023 on a high note. Even so, its price-earnings ratio is only 8.5, and that is considerably lower than its average over the past few years.  The coming year could be a particularly good one for Mercantile Bank shareholders.

West Michigan is home to two large publicly traded office furniture companies, Steelcase Inc. and MillerKnoll, Inc. Both companies were bumping up against two major forces in 2023. For starters, during most of the year, many economics experts and investment gurus were predicting a recession for either late 2023 or early 2024. A recession would hurt this industry’s sales and earnings.  The rate of new office construction would slow as would office remodeling. 

Second, the work-from-home trend has reduced the need for commercial offices. It’s becoming more apparent that this COVID-induced trend is not going away. For instance, here are a few sobering facts worrisome to investors in office furniture companies. Over 60 percent of businesses allowed their workers to work from home at least a few days per week as of the fourth quarter of 2023, an increase from 51 percent at the start of the year. Firms that track office activity report that office attendance is one-half to two-thirds of pre-pandemic levels. Finally, the office vacancy rate in the U.S. is currently at record high levels and is projected to rise even further in 2024.

These developments are not good for office furniture companies or their investors. There is some good news, however. The prospects of a recession in 2024 have diminished considerably. The resulting strong stock market performance at the end of the year included both companies, and their stock prices increased significantly.

 Here’s how the stocks of the two West Michigan-based companies performed last year.

MillerKnoll, Inc.

The company’s first-quarter financial report in September reported a nearly 15 percent decline in revenue, while earnings per share were $0.37 compared with $0.44 a year earlier. Both of these numbers were higher than expected by analysts. Further, the company raised guidance for its current fiscal year ending June 1, 2024, based on the expectation that more workers would be returning to offices across the U.S. 

 On this news, the company’s price shot up from about $20 to nearly $25 over the next two weeks and ended the year up 27 percent higher. 

Steelcase Inc.

Steelcase’s stock price mirrored MillerKnoll’s. Its price remained in the $6.50-$9.00 range until mid-September and then increased significantly to $13.52 by the end of December. That increase equates to a 91.2% increase, the best performance of any company in the West Michigan Index in 2023. What’s more, Steelcase’s stock price had fallen for three straight years prior to 2023, making last year’s huge increase especially noteworthy. 

The company reported its fiscal third quarter performance on December 21. Revenue was lower than expected, which was offset by lower expenses and higher gross profit margins. International sales increases offset domestic decreases.  The company faces many challenges and opportunities for 2024.

Gentex Corporation

Investors in Gentex, a company most recognized as a maker of automobile self-dimming mirrors, enjoyed a great year as its share price rose 19.8 percent. Optimism for 2024 and beyond is based on these factors:

• Gentex has no long-term debt. That is highly unusual for any large U.S. corporation but is consistent with Gentex’s decades of conservative financial management.
• It is engaged in several new product launches.
• When the company’s fourth-quarter earnings report becomes available during the winter, consensus estimates from stock analysts expect full-year 2023 earnings per share to be about 30 percent higher compared with 2022.
• Management is optimistic about the company’s full display mirror and Homelink which allows drivers to control electronic systems in their homes. Sales of both systems are growing rapidly.
• As further proof of the company’s great year, its return on equity is 18 percent compared with the industry average of 4 percent and the auto sector’s 12 percent average.

Another way Gentex stands out from most publicly traded corporations is its focus on share repurchases. For instance, it has repurchased nearly sixty million of the 291 million shares that were outstanding eight years ago. Why? Because it can. It generates huge amounts of cash annually, more than it needs for corporate purposes. Generally, the rate of return on cash is low, so the company returns the cash to shareholders through share repurchases.

Kellogg and Kellanova

Kellogg Company announced in mid-2022 that it planned to split into three different companies in 2023. It changed its plans as the split date approached, and instead of three companies, it split into two separate publicly traded companies on October 2, 2023. W.K. Kellogg Company is the name for the company whose business is cereal and is now traded under the ticker symbol KLG. Its headquarters remains in Battle Creek.  The snack business (e.g., Pringles, Cheez-It, Pop-Tarts, Rice Krispie Treats, and Eggo) and plant-based products are now with Kellanova. Its stock continues to be traded under the symbol K.

Both companies are listed on the New York Stock Exchange. The majority of growth and profits in the old Kellogg Company came from snacks, not cereal, and by splitting the business, the expectation is that Kellanova will be rid of the slow-growing cereal business. As a result, it will be able to generate higher returns for shareholders.  Kellanova has dual “campuses,” one in Battle Creek and one in Chicago. Its corporate headquarters, however, will be in Chicago. The company gets one-half of its sales from outside of the U.S. and Canada. 

When the split was implemented, all of the old Kellogg shares were transferred to the new Kellanova, and then Kellanova shareholders received one share of the new W.K. Kellogg for every four shares of Kellanova. 

The returns for both companies are computed from the date the split occurred, not from the first day of trading the prior January. Kellogg, the cereal company, began trading on October 2, 2023 at $13.35.  By December 31, its price had decreased slightly to $13.12. It is too soon to have a good feel for how the company will perform financially, but cereal industry sales and profitability have been growing slowly, and that is likely to continue.

On the other hand, Kellanova, the snacks business, was trading at $52.50 on October 2 and ended the year at $55.91. Company management expects 2024 to be a particularly good year.

Meritage Hospitality Group, Inc.

Meritage, based in downtown Grand Rapids, operates 385 Wendy’s, Taco John’s, Stan’s Taco, and Morning Belle quick-service and casual restaurants. Its price varied very little during 2023, ranging mostly from $19 to $21 per share. The stock is thinly traded, and in fact, there were several times during the year that the stock wasn’t traded for several days.

The company announced it had acquired 25 Wendy’s restaurants during 2023, and it also announced plans to build fifty-two more over the next three years. Like most restaurants, the company battled to keep up with inflation, a lack of workers, and higher labor costs. The stock price has fluctuated around $20 for several years.

Perrigo Corporation PLC

Perrigo specializes in manufacturing and selling over-the-counter health and wellness products. Its stock price began the year at about $32, quickly rose to the mid-thirties and continued to bounce around that price until August when it began a slow decline back to its January level of about $32 by December 31. All in all, its price movements cancelled each other. The company reported its third quarter financial results in early October, with net sales up 6.1 percent while reported earnings per share were $0.17 compared with a loss of $0.88 in 2022.  Those are encouraging results considering that Perrigo has struggled to increase its profits for several years. 

SpartanNash Company

SpartanNash distributes and sells grocery products. In January, Its stock price began in the low $30s, slowly fell to the low $20s, and stayed there throughout the rest of 2023. What caused the $10 per share decrease? Its third quarter financial results reported both revenue and earnings lower than consensus estimates, and management lowered slightly the high end of its estimates for sales and earnings. These disappointing results followed second-quarter reports of an increase in revenue, but lower earnings. Sales increases are great, but investors value earnings increases much more heavily. There is an investing lesson from Spartan’s stock performance over the past two years. For all of 2022, its stock increase was the second highest in the West Michigan Index, but in 2023, it was the worst performer with its price dropping 21.4%. The lesson? Past performance is no guarantee of future results. 

Stryker Corporation

Stryker describes itself as a medical technology company. Its stock price rose rapidly during the winter months, increasing from $237 at the beginning of the year to nearly $307 in April, and it then spent the rest of 2023 bouncing between $250 and $300. Overall, its stock price rose by a little more than 22.5 percent in 2023. Here are a few of the highlights:

•  Its dividend has more than tripled since 2013 ($1.06 to $3.20, a healthy 12.3 percent compound rate of increase over the past decade).
• Long-term debt fell from $11.9 to $10.4 billion over the previous twelve months and fell by nearly $3 billion over the past three years from $13.4 billion in 2017.
• The company predicts about 10 percent growth in both sales and earnings for the year 2023.
• Its CFO stated that the company has “a long list from all of our divisions in terms of potential acquisitions,” even though it made only one acquisition in 2023 -- Cerus Endovascular Ltd. -- a medical device maker, for about half a billion dollars. The company is likely to be more active with acquisitions in 2024.

Overall, 2023 was a very good year for both the company and investors, and 2024 looks like more of the same.

UFP Industries, Inc.

The company designs, manufactures, and markets wood and non-wood building materials. Economic conditions came together in 2023 to create an outstanding year for UFP Industries investors. The company’s stock price started at $79 and rose to $125.55 by the end of December, a 58 percent gain and an all-time high price dating back over thirty years. And, over the past five years, investors have earned a compound return of 42 percent per year. Sales and earnings decreased significantly in 2023 reflecting significant decreases in prices. Yet, the stock price continued to rise. Investors are taking a longer view of the company’s prospects.  UFP generates large cash flows which are used to update technologies, purchase companies, and repurchase shares of stock. It had approximately $2 billion in liquid assets at mid-year. The company’s track record over recent years and its huge liquidity attract investors.

Whirlpool Corporation

The household appliance manufacturer’s stock price declined more than $50 per share from mid-July to the end of October and then recovered $20 of the decrease by December 31. The reason for the sharp drop was a huge decrease in earnings. In fact, earnings per share fell to -$28.87. That’s not a misprint; losses were nearly $29 per share. Higher interest rates in the first half of 2023 caused less new home construction and caused consumers to delay purchasing new appliances.    

In its third-quarter earnings report, Whirlpool’s managers affirmed its earlier estimate of annual sales, but they projected earnings per share would decrease from the previous range of $13-$15 to $8 and reduced the estimate of cash flow generation by nearly 40 percent. The stock declined significantly following these downward revisions. On the other hand, the company was able to reduce its operating expenses by $300 million in the third quarter and projected total cost reductions of $800 million by the end of December. These reductions contributed to the $20 stock price increase late in the year.

Wolverine Worldwide, Inc.

The Rockford, MI-based company is best known for its broad portfolio of footwear products. The company’s stock price rose during the first quarter, slowly decreased until the first week of August, and then declined 25 percent and ended the year just above $9 per share. Sales fell in most segments and brands for an overall decrease of nearly 24 percent. Almost all metrics of importance to investors fell compared with values earlier in the year.  Wolverine reacted by cutting costs and reducing inventory. It also says it likely will sell some of its underperforming shoe brands. The stock price will rise when the company shows it has turned the corner by beating the consensus estimates of sales and earnings. Even so, it will have a long, difficult job getting its financial value back to where it was two to three years ago.