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10 Bank Stock Picks: Heroes vs. Zeros

9. Wells Fargo

Shares of Wells Fargo (WFC - Get Report) closed at $26.07 Friday, returning 3% since Sept. 3, 2010. Based on a quarterly payout of 12 cents, the shares have a dividend yield of 1.84%.

The company and its investors have fared the best among the "big four" U.S. banks during a difficult year of regulatory clampdowns on mortgage servicing and foreclosure practices, the implementation of the Durbin amendment to lower fee revenue from debit card transaction charges, mortgage putback demands from investors, concern over eventual compliance with the enhanced Basel III capital requirements and exposure to European sovereign debt.

The company's third-quarter ROA of 1.29% was the best among the big four, although third-quarter earnings of $4.1 billion were boosted by an $854 million release of loan loss reserves. Please see TheStreet's earnings coverage for a full discussion of the company's third-quarter results.

The shares trade for 8.1 times the consensus 2012 EPS estimate of $3.20 among analysts polled by FactSet, and for 1.5 times tangible book value, according to SNL Financial.

Guggenheim Securities analyst Marty Mosby rates Wells Fargo a "Buy." In Mosby's 2012 Outlook for Large-Cap Banks published on Nov. 14, the analyst raised his price target for the shares to $37 from $31.50, based on a multiple of 10.8 times Guggenheim's 2012 EPS estimate of $3.44. Mosby noted that at the then price-to-book ratio of 1.4 compared "to a historical average of 282% price to tangible book value."

Out of 23 analysts covering Wells Fargo, 20 rate the shares a buy, two have neutral ratings, and one analyst recommends selling the shares.
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