NEW YORK ( TheStreet) - Bank stock investors canvassing the industry for stock plays have a big decision to make now the nation's largest banks have reported earnings.

Should investors chase a long-expected earnings rebound at suffering banking giants like JPMorgan Chase ( JPM - Get Report), Citigroup ( C) and Bank of America ( BAC - Get Report) potentially lifting shares from single digit price-to-earnings multiples, or should they put their money behind a safer premium-priced lenders like Wells Fargo ( WFC - Get Report), U.S. Bancorp ( USB - Get Report), BB&T ( BBT) and M&T Bank ( MTB - Get Report)?

Second quarter earnings are proving once more that following Warren Buffett's bank stock investment plan in traditional lenders highlighted by Wells Fargo remains a simple and effective strategy in an industry marked by risk and hard-to-understand earnings.

Simply put, the 'Oracle of Omaha' has cast his money behind banks that are simultaneously growing earnings through bottom-line share repurchases and a top line mortgage lending rebound. At the same time, Buffett's been hesitant to put his money behind capital markets-oriented players like JPMorgan or pure-breed investment banks like Goldman Sachs ( GS) and Morgan Stanley ( MS), which suffer from a Wall Street malaise, the burdens of new regulations and a slowly escalating European debt crisis.

The allure of their single digit PE ratios relative to the mid-teen price multiples of the likes of Wells Fargo, US Bancorp and M&T Bank hasn't yet appealed to Buffett.

By avoiding common stock bets on investment banks, Buffett's financial sector share investments have greatly outperformed most other investors, and second quarter earnings only reaffirmed his record. Since JPMorgan and Wells Fargo kicked off bank earnings season with stronger than expected earnings reports, it is the latter that has outperformed, according to Bloomberg data.

When looking over Buffett's bank stock portfolio, the outperformance is even more marked.

Since earnings season began, key stock plays like US Bancorp and M&T Bank are among the sector's top performers in the Standard & Poor's 500 Index. Bank of America, Morgan Stanley and Goldman Sachs, meanwhile are among industry laggards.

Of course Buffett made preferred share investments in Goldman and Bank of America ( BAC - Get Report) during the height of the crisis, but these were essentially super-safe loans that guaranteed a return and did not reflect his common stock plays.

While bank stock gains since the second week of July is a poor way to construct an investing plan, the share performance only reinforces multi-year trends that are also reflected in earnings statements.

As Buffett continued to hold banks stocks as a key part of a U.S. economic recovery investment, the value investing guru has kept his chips smartly behind Wells Fargo -- which is projected to end 2012 as America's most profitable bank according to Bloomberg compilations of analyst estimates -- even if the battered share prices, titanic balance sheets and boom and bust earnings of money center giants lure some of the sectors smartest investors into sub-par investments.

Since the 2008 Wall Street crash pummeled most bank stocks and a March 2009 stock bottom led to a tripling of the shares of megabanks like Citigroup and Bank of America, and a doubling of JPMorgan and Goldman Sachs within a span of just over a month, many financial sector investors and analysts forecast that those gains could be replicated.

Instead, the nation's largest investment banks have underperformed, even as their shares gyrated upwards on misplaced optimism of a durable trading or deal making surge.

From March 2009 to May 2009, the largest investment banks were among the financial sector's top performers -- since then, Morgan Stanley, Bank of America, Goldman Sachs and Citigroup shares have all lost over 15% -- and are among 10 S&P 500 bank stocks out of 85 in total that have lost double digits since May 2009, according to Bloomberg data.

While JPMorgan has gained roughly 20% since then, the Bloomberg data shows that Buffett financial sector picks like Wells Fargo, US Bancorp and M&T have dramatically outperformed those returns.

The data should tell investors that in spite of the press given to capital markets players with volatile earnings, they may be better off following Buffett into less glamorous banks stocks that are exposed to consumer and mortgage lending growth.

Earnings confirm the strategy. In fact, it was strengthening lending gains, which propelled earnings at Wells Fargo far higher and that was a rare bright spot at money-center giants like JPMorgan.

In second quarter earnings, Wells Fargo beat estimates on a 35% jump in quarterly profits, bolstered by mortgage lending and other housing-related activity. Amid recovering new and existing home sales, JPMorgan reported its mortgage loan origination revenue grew nearly 30% year-over-year and 14% sequentially to $43.9 billion. Other areas such as its investment bank saw a sharp revenue and profit drop.

JPMorgan's home lending-based earnings boost proved to be among the quarter's most notable positives, amid an earnings season market by a sharp drop in investment banking revenue and a $4.4 billion 'London Whale' trading loss. Across Wall Street, traditional investment banking revenues fell sharply - by nearly 50% in the case of Morgan Stanley - as large bank earnings were clouded once more by one-time accounting items. Meanwhile, the prospect of a rate-fixing scandal that start with Barclays ( BCS) and spread continues to cloud some large cap banking giants.

"With roughly 80% of the banking industry by assets having reported 2Q12 results, the overarching theme of earnings has been continued impressive mortgage banking revenues, surprising net interest margin resilience, and modest loan growth," wrote FBR Capital Markets analyst Paul Miller in a July 23 earnings wrap. "Given a sustained low rate environment, government mortgage programs, and constrained market capacity, we believe that mortgage banking will continue to be a dominant earnings driver through the end of 2012," he added.

Banks with large mortgage banking platforms like Wells Fargo, US Bancorp, JPMorgan, Fifth Third ( FITB) and PNC Financial ( PNC) should continue to be supported by refinancing and home buying activity, noted Miller.

In fact, earnings results reinforce Buffett's forecasts for the housing market. In a July 12 CNBC interview, Warren Buffett said that while economic growth has fallen to a standstill, he is seeing a pickup in residential housing, in a comment on the economy that may also be reflected in bank earnings.

"The general economy in the United States has been more or less flat, and so the growth has tempered down. But the residential housing, we're seeing a pickup. It's noticeable. It's from a very low base," said Buffett, who noted that his tempered optimism was a 'flip-flop" from his outright bullishness on housing in 2011.

Many bank and housing sector analysts agree. On Monday, Goldman Sachs analysts upgraded their earnings estimates for homebuilders like KB Home ( KBH) and M.D.C. Holdings ( MDC,), citing a "strong US housing recovery."

Fundamental stock investors may also have reason to follow Buffett. Following the results of the Federal Reserve stress tests in March, it was many of Buffett's investments like Wells Fargo and US Bancorp, which led the way on share buyback plans and dividend boosts. Wells Fargo boosted its dividend 83% and indicated accelerated a buyback program launched in 2011. Meanwhile U.S. Bancorp boosted its dividend by 56% and targeted $3.3 billion in buybacks.

For more on the contrasts between U.S. bank earnings and business models, see why Warren Buffet shuns investment banks. See why Barclays' scandal was born out of a derivatives bet for more on Libor litigation.

-- Written by Antoine Gara in New York