Time to Deposit Funds Into Banks

NEW YORK (TheStreet) -- Now is one of the best times to invest in the banking sector. With endless problems in Europe and recent downgrades by rating agencies, banking has lost investor interest.

Banks may not give you a free toaster anymore, but some are giving away lots of profits to investors in the form of earnings and dividends. Loan rates are low, but don't confuse low rates with low spreads. When banks can borrow at less than 1% and turn around and loan it out at 4% or more, the banks can do very well indeed.

Housing is still a mess; however, every day the mess becomes a little less. Some housing markets are already back to 2008 levels.

Instead of a simple solution of ever-increasing reserve amounts to prevent banks from becoming dangerously large, Washington decided hundreds of pages worth of Dodd-Frank was a better solution. Either way, the government has made it abundantly clear the banks listed below are safe from going out of business. TheStreet's Jim Cramer and Stephanie Link examine Moody's lowering of bank debt ratings in ActonAlertsPlus.

Bank of America ( BAC) is one of the world's leading financial services companies and trades an average of 180.4 million shares per day with a market cap of $81.9 billion.

BAC makes for a great daytrading stock. One look at the volume tells you daytraders, computers and high-frequency trading firms beat each other over the head nonstop with BAC. The advantage for investors is the spread is always small and getting in and out even outside normal trading hours is easy.

Short interest is very small at 2.5%.

The mean fiscal year estimate price-to-earnings ratio is 12.41, based on earnings of 61 cents per share this year. Investors are receiving 4 cents in dividends for a yield of .53%.

JPMorgan ( JPM) is a leading global financial services firm. The company was founded in 1823 and trades an average of 49.9 million shares per day with a market cap of $134.5 billion.

Pushing recent losses and news aside, as it will soon be forgotten, I like JPM in the $35 area. The stock tested the 200-day moving average recently and appears ready to test the moving average again. Usually the second or the third time is a "charm" and once above the 200-day the average becomes support.

Very small short interest. At 1%, there isn't a chance for a short squeeze, but I believe the lack of smart money betting on a falling stock price is more important.

The trailing 12 month price-to-earnings ratio is 7.8, the mean fiscal year estimate price-to-earnings ratio is 8.14, based on earnings of $4.34 per share this year. Investors are receiving $1.20 in dividends for a yield of 3.4 %.

I like the $35 strike price July puts as an entry method at $1.10 or more this week. The puts have 23 days until expiration and if exercised, the cost basis for JPM is only $33.90.

JPM beat earnings in three of the last four quarters, with one miss for -0.02 cents (-2.17%) per share.

Citigroup ( C), the leading global financial services company, has some two hundred million customer accounts and trades an average of 43.2 million shares per day with a market cap of $78.4 billion.

The trailing 12-month price-to-earnings ratio is 7, the mean fiscal year estimate price-to-earnings ratio is 6.82, based on earnings of $3.92 per share this year. Investors are receiving four cents in dividends for a yield of .15%.

Citi's dividend is largely symbolic and some dividend funds will buy it as a result, but don't expect to take home a lot from the dividend anytime soon.

Citi is another low-short-interest stock and with good reason. The earnings multiple is under 7 and an improving economy will put a lot of wind into this company's sails. After accounting for the one for 10 reverse split, it's like buying C for $2.67 a share, but better. The Feds sold off their C so that supply is no longer overhanging on the price.

I like the July $25 put options for 65 cents or more this week. With a current trading price of $26.73, C would have to drop $2.38 before it goes under water. Even so, I still like C at $26 and that much more at $24.35 a share.

Wells Fargo ( WFC) is a diversified financial services company and trades an average of 30.1 million shares per day with a market cap of $171.2 billion.

WFC has 20 analyst buy recommendations, and three recommending a hold. The average analyst target price for WFC is $38. I believe the price target is reasonable within the next year.

WFC's short interest is less than 1%. In this type of market it's rare to find any stocks with less than 1% short interest. Wall Street professional short-sellers are not betting big WFC is going down anytime soon.

WFC has performed well in comparison to other banks with an increase of almost 17% during 2012 so far.

WFC's moving averages are mostly trending higher with some short term softness. Overall, I believe WFC is a buy on dips. I currently favor the July $32 strike put options for a sale at or above 85 cents this week.

U.S. Bancorp ( USB) is a financial services holding company. The company was founded in 1863 and trades an average of 11.1 million shares per day with a market cap of $59 billion.

I like USB on many levels. When I think of US Bank, my first thought is usually Travis Kraker. Kraker is one of the rare types of investment advisers who actually places his customers' interests before his own. Obviously, I don't require an investment adviser; however, if I did, Kraker is the first person I would call. After meeting and learning more about Kraker I moved my personal banking to USB.

USB has 13 buy recommendations and the average analyst target price for USB is $33.82.

Short interest is very low at 1.2% of the float.

I like the July $30 strike put options at 45 cents or more through this week. If exercised, the cost basis is $29.55, making the dividend yield above 2.5%.

USB beat earnings in all four of the last four quarters, with an average beat of 0.03 cents (5.94%) per share.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, the author held no positions in any of the stocks mentioned.

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