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NEW YORK (
JPMorgan Chase(JPM - Get Report) and
Wells Fargo(WFC - Get Report) are both considered the healthiest among the U.S. banks. But which of these stocks will be the safer bet in 2012?
For now, it looks like JPMorgan is the analyst favorite, with 29 out of 32 analysts rating the stock a buy according to Reuters data. The other three analysts have a hold rating.
While the outlook for Wells is also bullish, some are less optimistic about the stock given its relatively rich valuation versus the sector. Wells trades at 157% its tangible book value per share, compared to 102% in the case of JPMorgan. Several large-cap bank stocks including
Bank of America(BAC) and
Citigroup(C) trade at deep discounts to book value.
25 out of 34 analysts have a buy rating on Wells Fargo, reflecting overall bullishness. Eight analysts rate the stock a hold, while one analyst has a sell on the stock. Wells also has the backing of billionaire investor
which has added to its appeal.
Wells commands a strong premium relative to JPMorgan in part because of its low exposure to the volatile capital markets business. Depressed trading and deal activity hurt the "universal" banks in the second half of 2012, with concerns about the impact of the Volcker rule on banks' trading activity also depressing stocks.
Wells Fargo shares have shed only about 10% in 2011, compared to JPMorgan's 21% drop.
While investment banking is among the fastest growing businesses for Wells Fargo
, analysts say it is still little more than a "rounding error" for the bank.
CFO Tim Sloan told
TheStreet in a recent
that the reason the stock commanded a premium over JPMorgan was because of its diversified business model. "I think one of the reasons we're trading at a premium--and I don't want to bad mouth JPMorgan because I think it's a very well run firm and a very effective competitor--but I think that one of the reasons we trade at a premium is we have a very diversified model, meaning that we've got a lot of businesses. None in particular is so great or so large that it creates a lot of volatility in our earnings stream," he said.