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

'Quality' Bank Stocks Gain in Favor

But the relatively low valuations for Bank of America and Citigroup reflect the high level of price volatility over the years, along with weak earnings. Bank of America's 2012 return on average assets (ROA) was 0.19% during 2012, according to Thomson Reuters Bank Insight. The ROA has ranged from a negative 0.09% to 0.22% over the past five years.

Citigroup's 2012 ROA was 0.41%, and the company's ROA has ranged from a negative 1.28% to 0.57% over the past five years.

Mutascio's point about the market's failure to place a premium on quality is supported by a look at forward price-to-earnings ratios for the nation's largest regional banks, while also considering earnings strength and consistency.

Shares of Wells Fargo (WFC - Get Report) closed at $34.88 Friday, trading for 9 times the consensus 2014 EPS estimate of $3.88. The amazing thing about the stock is that it trades at a slightly lower P/E than Bank of America, despite being a much less risky play for investors. The company's 2012 ROA was 1.41%, and the ROA has steadily risen over the past five years, from a low of 0.44% in 2008. In fact, 2008 was really the only "bad year" for the company in recent memory. Aside from a relatively low ROA of 0.97% in 2009, the ROA has been well above 1% over the past 10 years.

Shares of U.S. Bancorp (USB - Get Report) of Minneapolis closed at $33.65 Friday and traded for 10.2 times the consensus 2014 EPS estimate of $3.30. While that's a bit of a premium above the market's forward P/E for Bank of America, USB has been an even stronger earnings performer than Wells Fargo. The company's 2012 ROA was a solid 1.62%. Over the past 10 years, U.S. Bancorp's ROA only slipped below 1% in 2009, when it was 0.82%, and the ROA was above 1.5% each year except for 2009 and 2010, when it was 1.16%.

Two Upgrades to 'Buy'

Mutascio on Monday upgraded Wells Fargo and U.S. Bancorp to "buy" from "hold" ratings.

The analyst's price target for Wells Fargo is $42, and he said the stock's discount to lesser-performing peers "is based on fears that the company is over-earning in the current mortgage banking environment." Mutascio disagrees with that notion, and said "the company has several material offsets to lower origination activity and gain on sale margins."
2 of 3

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
C $54.08 0.00%
BAC $17.44 0.00%
FITB $20.53 0.00%
USB $43.77 0.00%
WFC $55.22 0.00%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs