Investing in Your Backyard: North Carolina

Break out the grits, the livermush, and a pitcher of sweet tea -- it's a backyard investing barbecue!

There are many good reasons for researching investment opportunities in a certain geographic area. Today, it's the Tar Heel State, one of the original 13 colonies with a business history stretching back hundreds of years.

If you happen to live in Wilmington or Asheville, you already have a few advantages when it comes to evaluating the local market -- for example, access to local news sources and the word on the street, as well as a high probability of being a customer or employee of these companies. And if you're not a local resident, you might still want to know whether the business climate matches the weather -- a hot area could be chock-full of undiscovered treasures on their way to greatness.

Without further ado, here are the largest companies headquartered between the Outer Banks and the Smoky Mountains today:

Plenty of liquidity
The two largest players in the Old North State are also two of the largest banks in the nation. The Bank of America we see today is the result of decades of mergers and acquisitions, including the $64 billion 1998 deal combining BankAmerica and NationsBank, as well as more recent purchases like FleetBoston and MBNA.

Bank of America is also a Motley Fool Income Investor pick today, and it gets plenty of love from our Motley Fool CAPS players. BeTheBallDanny has owned the stock in one form or another for 25 years, for some good reasons: "Dividend over 4% and half its revenue isn't loan driven but fee driven, which will buttress it in a downturn & allow it to keep paying the dividend."

It's not all Biltmore Estate wine and Charlotte roses, though. All-star CAPS player BBQPorkMogul takes a contrarian view: "Ken Lewis & crew are net value destroyers. They overpaid for MBNA and dilute the heck out of the share count with their onerous executive pay packages. They have been out-hustled in many markets and are relying on acquisitions as a surrogate for actual growth. They're too big to grow and they suck in so many ways when compared to peers."

More about Wachovia
Wachovia is no stranger to acquisitions, either; it incorporates former competitors like SouthTrust and First Union. In truth, today's Wachovia is the old First Union with a spiffy new name, because of the reverse-merger structure of that deal.

prose976, another all-star player, likes this consumer-oriented bank a lot: "Service-oriented, discount banking for the common man (and woman). High dividends, lots of insider ownership, fantastic fundamentals. As long as they play and tell it straight, Wachovia will continue to thrive. Low P/E's, progressive and aggressive marketing. Great no-nonsense, full-service banking. Watch out Bank of America (sort of)."

One last bank. Promise.
BB&T rounds out the banking trifecta here. This is a much smaller operation than the two leviathans, and has far fewer defenders in CAPS. That doesn't mean that it's entirely friendless, though, as Newbee1 takes a swing for the stock: "Solid management, mildly aggressive growth strategy, sound fundementals [sic], steady long-term bottom-line growth and a well-covered dividend. The price of this stock is hampered only by Fed rate uncertanties [sic]. It ought to be currently priced around $55 which would put the PE above 17."

Now the others
Of course, North Carolina does not live by banking alone. You're already familiar with home improvement warehouse chain Lowe's, and Duke Energy is yet another Income Investor pick based on its healthy and well-funded dividends.

Looking outside the top five, you'll find a stiff dose of engineering and technology firms. North Carolina's Research Triangle is paying its own kind of dividends, and efforts to build up a second high-tech campus around Kannapolis are well underway. Linux wouldn't be what it is today without Raleigh-based Red Hat (NYSE:RHT), for example.

As for that massive bank population, it goes deep into the bench with tons of small-cap regional banks. This prevalence is not because of favorable taxes or banking laws, which is how Nebraska and Delaware like to attract their businesses. Rather, it seems like a local tradition has built up a strong support system for that kind of operation, with some of the best law schools and business universities in the country churning out fresh staffers by the thousands every year.

An entrepreneurial spirit also helps, and there are plenty of down-home innovators around, such as mini-mart operator The Pantry and steel processor Nucor (NYSE:NUE) (which grew from obscurity to the world's biggest steel mill in a couple of decades). Read all about it in Jim Collins' "Good to Great," which I recently reviewed here.

The Foolish bottom line
Altogether, I found 98 public companies in the Rip Van Winkle state. Eight of them have earned five-star CAPS ratings, while five have gotten the nod from one of our Foolish newsletters. That doesn't include Krispy Kreme, which was once a Stock Advisor recommendation but lost that distinction a couple of years ago.

For a state that seems to get hit by more hurricanes than Florida, it's a respectable tally. I would still dig into markets like Seattle or Minnesota before burrowing much deeper into the Carolina foothills, but if you're into financial stocks, your mileage might vary.

Do you agree? Disagree? Feel free to weigh in on the North Carolinian market -- or on any stocks at all, really -- by joining Motley Fool CAPS and blasting away with your ratings and commentary pitches. And if Chapel Hill isn't your 'hood, maybe we'll come around where you live the next time.

Further Foolishness:

• The Best Financial Stock for 2007 Is ... Bank of America
• Wachovia Pays Up for West Coast Real Estate
• The Highest Possible Returns. Period.

Bank of America and Duke Energy are far from the only impressive picks in the Motley Fool Income Investor service. See all the rest, and how they're doing, with a 30-day free trial.

Fool contributor Anders Bylund is a Bank of America shareholder, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and you can always bank on Foolish disclosure.