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5 Large-Cap Bank Stock Buys From Guggenheim

NEW YORK ( TheStreet) -- With so many bank stocks showing very strong year-to-date returns, even aggressive bank stock investors may be tempted to pause and take some gains.

Guggenheim Securities analyst Marty Mosby covers large-cap banks, and shared his five top picks with TheStreet, including three "quality banks" and two "that are still in recovery mode," providing an opportunity for investors, because of discounted valuations to tangible book value and to forward earnings estimates.

Here are Mosby's five top picks, ordered by ascending upside potential, based on Monday's closing prices and the analyst's 12-month price targets:

5. Wells Fargo

Shares of Wells Fargo (WFC - Get Report) closed at $33.50 Monday, returning 23% year-to-date, following a 10% decline during 2011. Based on a quarterly payout of 22 cents, the shares have a dividend yield of 2.63%.

The shares trade for just over twice their tangible book value, accordion to Thomson Reuters Bank Insight, and for nine times the consensus 2013 earnings estimate of $3.68 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $3.28.

According to data supplied by Thomson Reuters Bank Insight, Wells Fargo's quarterly operating returns on average assets have ranged from 1.21% to 1.30% over the past five quarters, putting it near the top for consistent, strong earnings performance among the largest U.S. bank holding companies.

Mosby says that with the completion of Wells Fargo's integration process for Wachovia -- which Wells Fargo acquired at the end of 2008, thus doubling in size -- the company will "take advantage" of the development of their franchise, "as well as the integration expenses going away in the second quarter."

Mosby said in April that "WFC's plan to remove $1.5 billion in quarterly operating expenses throughout 2012 is expected to begin to impact earnings in the second quarter of this year, generating an acceleration in sequential earnings per share growth next quarter," adding that although "one of the biggest concerns about WFC, in our view, has been whether revenues would grow in 2012," the company during the second quarter "increased revenues sequentially by $1 billion, as fee income sources rebounded."

Please see TheStreet's earnings coverage for details on Wells Fargo's second-quarter results.

Mosby's price target for Wells Fargo is $43, and he estimates the company will earn $3.43 a share this year, followed by EPS of $3.84 during 2013. The analyst said that "Over time, if management can replicate the prior era of consistent earnings per share growth, we expect WFC to produce 13% to 18% in annualized total shareholder returns."

Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.
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RF $7.08 -5.73%
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