2 Bank Stocks to Buy Now

NEW YORK (TheStreet) -- Despite chronic concerns over the fiscal cliff and constant threats of European debt, financial stocks were one of the bright performers in 2012. One would think it would be the other way around.

The fact that Bank of America's ( BAC) stock was able to double despite an unfavorable interest rate climate highlights how fortunate investors were in the banking sector.

Will that continue for the banking sector? Here are two names to watch closely in 2013.

JP Morgan Chase ( JPM)

It makes sense to lead off with JP Morgan since the bank lead off 2012 with a bombshell -- announcing it had amassed a credit-derivative loss (initially reported) of $2 billion. Investors later learned the poor trade -- now known as "London Whale" -- had actually reached levels of close to $7.5 billion. On the news, the stock lost almost 30% of its value. But it didn't last.

Wall Street has a very short memory. Nothing says I'm sorry better than beating earnings, which JP Morgan managed to do in both quarters that followed. In the most recent quarter JPM exceeded both top- and bottom-line estimates, beating EPS and revenue goals by 6% and 16%, respectively.

The bank posted revenue of $25.9 billion, which was 13% better sequentially and improved 6% year over year. Net income also soared to $5.7 billion, a 15% sequential improvement. This was also enough to top rivals such as Citigroup ( C), which posted revenue of $19.4 billion, declining 7% year over year.

There's plenty to like with JP Morgan at current levels, including 20% upside potential. The catalysts will include the possibility of share buybacks over the next couple of quarters and the bank's commitment towards deleveraging its balance sheet. Investors should expect shares to reach the $52 level by the second half of the year.

Wells Fargo ( WFC)

Next on the list is Wells Fargo. Although the bank's third quarter was not up to its usual standards, relative to expectations, it wasn't all that bad. Plus, it was enough to continue what is now 11 consecutive quarters of profit growth, posting $4.9 billion in the third quarter. Not only was this a company record, but it also represented year-over-year increase of 22%.

What's more, the bank consistently demonstrates solid execution and leverage as both its assets and its investments continue to produce meaningful returns. This is despite prolonged weakness in interest rates. Well Fargo continues to benefit from a business that is unburdened from unfavorable risk -- the types that have hurt peers such as Citigroup, which has significant exposure abroad.

Finally, while most banks tend to fall in within the same category and thereby appraised on similar standards and metrics, it is clear that Wells is out to set itself apart from the rest. There's a premium placed for banks with above-average growth prospects that still meets certain criteria of safety.

From that standpoint, Wells Fargo meets all of the requirements. From an investment perspective, the stock is trading at a considerable discount. Investors should expect gains of 20% as the stock should reach $40 by its third quarter report.

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

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

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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