TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Recent bank

stress tests

have left many investors optimistic about financial stocks.

State Street

(STT) - Get Report

is one of the few companies that merits such enthusiasm.

Shares of the custody

bank

have climbed 20% this quarter, trailing the 28% gain of the

S&P 500

Financials Index. The gap has created an opportunity to invest in a stable company at a discounted price.

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With more than $12 trillion in assets under custody, State Street profits from simply warehousing assets. This unsexy

business

, which includes performance analysis and record keeping, accounts for 85% of the company's revenue. These services helped shield State Street from the brunt of the financial meltdown, which hit banks that focus on investment management and proprietary trading much harder.

Pension funds, investment firms and banks hire State Street to track and store their assets. These clients need the company's custody services in good times and bad, ensuring a consistent revenue stream.

Stock declines have pushed State Street's custody assets down in recent quarters, resulting in lower fee revenue from those services. In the first quarter, fees for servicing assets fell 20% from a year ago. During the bull-market years, servicing fees routinely rose more than 10% a quarter.

Still, State Street's fee declines have been less damaging than those of money managers

Legg Mason

(LM) - Get Report

and

T. Rowe Price Group

(TROW) - Get Report

, whose investment advisory fees have plummeted more than 30% in recent quarters. Firms that manage money can lose clients if performance suffers during an economic downturn, while banks that depend on proprietary trading can see profits evaporate over a few bad transactions.

While money management isn't State Street's primary income source, the company oversees $1.4 trillion for clients. That means shareholders get some exposure to a business that's risky but could be lucrative when stocks rebound.

With a return on equity of 16%, State Street has doubled the 7.8% average for financial companies. The stock offers a price-to-earnings ratio of 9.78 and a price-to-sales ratio of 1.34, less than half the industry averages of 20.12 and 4.29, respectively. That means its shares are cheaper than those of peers.

State Street's adjusted beta value of 1.45 indicates the stock is less volatile than those of

Citigroup

(C) - Get Report

and

Bank of America

(BAC) - Get Report

. But State Street shares could bounce higher than the market as a whole.

Government-mandated stress tests administered to 19 major banks showed that nine had enough capital to withstand a prolonged economic decline. As one of the passing banks, State Street won't have to dilute the value of its shares by issuing stock to raise capital.

TheStreet.com Ratings has assigned State Street a grade of C, a recommendation to "hold." Investors looking to take advantage of the bank stock rally should consider State Street, which offers more stability than other financial firms. It even comes with the government's seal of approval.

Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level II CFA candidate.