This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

5 Rational Bank Stock Picks for an Irrational Market

NEW YORK ( TheStreet) -- As we continue to highlight defensive bank plays for investors, TheStreet has identified five bank holding companies that have achieved strong, consistent earnings results through thick and thin.

These names have pulled back along with the rest of the banking sector, although the case can be made that the pullback for this group is simply irrational. Then again, an irrational market sets up good plays for investors.

While at this point in the credit cycle many banks are seeing significant boosts to earnings as their credit quality improves and they release loan loss reserves, there are banks out there that have managed to continue posting excellent results, quarter after quarter.

Beginning with a list of all publicly traded U.S. bank and thrift holding companies - except for those traded on the Pink Sheets -- we excluding companies whose return on average assets (ROA) dipped below 1% in any of the past 10 quarters, according to SNL Financial. That left us with 16 holding companies, and we narrowed down the list to the five with the highest average trading volume over the past three months.

For the ROA calculation, we went with net income before extraordinary items as a percentage of average assets.

Why focus on ROA? During the "good times" for the banking industry, investors have a tendency to focus on return on average equity (ROE), and while this can make sense "all things being equal," all things are not equal.

A high ROE could mean that a company isn't strongly capitalized. Another problem with ROE is that the figures for banks that have been boosting their capital levels through the credit crisis have become distorted.

An honorable mention goes to First Republic Bank (FRC - Get Report) of San Francisco, which was spun-off from Bank of America (BAC - Get Report) in 2010, after being acquired along with Merrill Lynch in 2009. According to SNL Financial, First Republic's ROA has exceeded 1.20% since the third quarter of 2009, which is as far back as the data is available.

A second honorable mention goes to Westamerica Bancorporation (WABC), which didn't make the group of five because of lower trading volume. The company has achieved an ROA exceeding 1% since the fourth quarter of 2008. Westamerica's second-quarter ROA was 1.73%.

Here are the five actively traded bank holding companies that have posted good -- or better -- earnings results for the past 11 quarters, in descending order by price-to-forward-earnings ratios. Three out of five are headquartered in Texas.
1 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $12.95 0.00%
BOH $61.69 0.00%
FFIN $25.75 0.00%
FRC $63.30 0.00%
IBOC $21.67 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs