NEW YORK (
) -- Most bank stock coverage is rightly centered on the volatility for the largest sector players this year, but investors should also consider smaller, steadier players for a portion of their long-term portfolios.
has assigned A (Excellent) ratings to just three mid-cap or large-cap bank stocks, although many more have "recommended" ratings of B+ (Good) or higher.
Rather than just considering 12-month price targets, based on earnings estimates, capital levels and various market and environmental risks, the way most sell-side analysts do,
places its emphasis on long-term total returns, as well as revenue trends and capital strength and dividends, while also considering short-term performance, financial stability and volatility.
With the sector's recent downturn -- centered around
(JPM - Get Report)
CEO James Dimon's disclosure on May 10 of a $2 billion second-quarter hedge trading loss -- the largest U.S. banks were trading at historically low multiples to book value and forward earnings estimates, as of Tuesday's market close.
The multiples for the "big three" are certainly attractive for investors who can handle the volatility associated with numerous political and regulatory headwinds for the group,
Bank of America's
(BAC - Get Report)
legacy mortgage mess, and JPMorgan's unfolding hedge loss drama, which includes the suspension of the company's share buyback program, investigations by several federal regulators, and upcoming Senate hearings.
- Shares of Citigroup (C) closed at $26.92 Tuesday, returning 2% year-to-date, following a 44% decline during 2011. The stock's five-year total return was a negative 94%, according to Thomson Reuters Bank Insight. Citigroup's shares were trading for just over half their tangible book value, and for six times the consensus 2013 earnings estimate of $4.68 a share, among analysts polled by Thomson Reuters.
- Shares of Bank of America closed at $6.98 Tuesday, returning 26% year-to-date, following last year's 58% drop. The five year total return was a negative 84%. The shares traded for 0.6 times tangible book value, and for seven times the consensus 2013 EPS estimate of $1.04.
- JPMorgan Chase closed at $34.01 Tuesday, returning 4% year-to-date, following a 20% decline during 2011. The five-year total return was a negative 21%. The shares traded for 1.1 times tangible book value, and for six times the consensus 2013 EPS estimate of $5.43.
In contrast, the three A-rated bank stocks discussed below were trading for at least 1.6 times tangible book value, and at least 12 times forward earnings.
But the five-year total returns for these three names also stand in sharp contrast to the largest three U.S. banks, ranging from 27% to 87%. The group has also seen much stronger earnings performance over the past five quarters than "the big three."
Here are the
three bank stocks
assigned "A" ratings by
, in no particular order: