Nine U.S. Bank Stocks for Right Now

Despite the astonishing run up from this year’s March lows, some investors are searching for reasons to invest in bank stocks. There are many reasons to avoid them but there are also some who believe that some banks are worth looking into. In this post, I will list 9 U.S. banks in two sets that seem attractive relative to hundreds of other banks.

But before getting into the list, we must remind ourselves that the easy money in bank stocks may already be gone. For example, in Is the bank stock rally over? Peter Lee of Euromoney said:

“It is possible that the cosy narrative of crisis giving way to healing and recovery in the global banking industry might not progress quite so smoothly. Credit costs are rising and the worst might still be in front of banks, not behind them.

In the six months following their lows in early March, US financial stocks rallied by 135% to early October while the overall stock market rose 51%. In Europe, financial stocks put on 121%, compared with 54% for the overall market, and in the UK they rose 139%, compared with 45% for the market as a whole.

Forward price-earnings ratios in the broad US and European stock markets are now above historical averages, and for financial stocks in particular even above their pre-crisis levels.

Banks aren’t yet saying that the peak of credit woes has passed or is even in sight. Investors, however, don’t seem to care. “

The first set of banks comes from the Journal’s article on November 2nd titled Investing in Banks? Check Loss Buffers.

According to this piece one metric that investors must consider when selecting bank stocks is bad-loan reserve provisions. “If a bank has a strong reserve against credit losses today, its earnings are likely to recover much more quickly than at less-girded peers.”

The six banks listed in this article are:

Source: The Wall Street Journal

According to Bernstein research, PNC Financial (PNC) has the highest bad-loan buffer at 130%. Citigroup’s (C) buffer of 109% is equal to its charge-off rate over the next 12 months. The bank with lowest buffer is Bank of America (BAC) at 90%.

The following list of regional banks increased their number of branches last year during the global turmoil. BusinessWeek says that this may give them an advantage as the industry recovers. For example, last year PNC of Pittsburgh gobbled up National City of Cleveland gaining hundreds of branches in Ohio and other states.

click to enlarge

Source: BusinessWeek

U.S. Bancorp (USB) continues to grow by acquisitions and is a strong performer among the regional banks. Southern-based BB&T (BBT) and Regions Financial (RF) also have strong franchises and now offer high dividend yields.

Comments

[Gosh-137:]

Regions Financial current dividend is now an annual $0.04 with a (not currently high) yield of 0.86%

Nov 05 01:23 PM

[Jeff Nielson:]

Here are a couple of questions for this U.S. bank-pumper.

1) HOW are U.S. banks going to manage REAL profitability (not the bogus numbers produced by their fraudulent-but-legal accounting), with delinquency/default rates on ALL categories of bank debt remaining near or at ALL-TIME record levels, AND with over $1 TRILLION of their capital sitting in a "savings account" with the Fed?

2) WHY do U.S. banks have over $1 TRILLION sitting in a savings account with the Fed? Are they hiding all this money there as their REAL "cushion" against future loan-losses OR is that money being tucked away to partially off-set the damage awards in the TIDAL WAVE of litigation against Wall St, which is just beginning?

Nov 05 01:37 PM

[bbro:]

Key ingredient is missing...what is the preprovision earnings of
these companies???

Nov 05 03:47 PM

[bbro:]

Again talk about non performing assets or preprovision earnings or
better yet check the Fair value of Financial instruments in the companies 10q....you use an incredible amount of ITALICIZED comments.....


On Nov 05 01:37 PM Jeff Nielson wrote:

> Here are a couple of questions for this U.S. bank-pumper.
>
> 1) HOW are U.S. banks going to manage REAL profitability (not the
> bogus numbers produced by their fraudulent-but-legal accounting),
> with delinquency/default rates on ALL categories of bank debt remaining
> near or at ALL-TIME record levels, AND with over $1 TRILLION of their
> capital sitting in a "savings account" with the Fed?
>
> 2) WHY do U.S. banks have over $1 TRILLION sitting in a savings account
> with the Fed? Are they hiding all this money there as their REAL
> "cushion" against future loan-losses OR is that money being tucked
> away to partially off-set the damage awards in the TIDAL WAVE of
> litigation against Wall St, which is just beginning?

Nov 05 03:50 PM

[mbkelly75:]

In words of one syllable or less - NO!!!!! Every metric I look at to show value says that all of these are over-valued - some ridiculously so. Only one or two showed a decent P/B ratio but you have to be able to trust that book value and I do not. A few are showing insider buying - for my money - they are welcome to it.

Nov 05 04:26 PM

[ReverendSlappy:]

Banks that are picking up these little FDIC failures for pennies on the dollar will end up having the shear size, at discount cost, to move forward in the market. So far, USB leads the way...

Nov 05 06:00 PM

[djj420:]

Bank stocks? No thanks.

Nov 06 08:46 AM

[ain't no fo...:]

Hey, great unemployment numbers today!!!! Economy's hitting on all cylinders!!!!

Just curious... I don't hear much about the bank stress tests lately... where do these numbers today line up with the most adverse scenarios Mr. Geithner?

Again, just curious... because, I seem to recall, people thought the banks might have a few problems getting people to pay their loans in this magnificent green shoots recovery if unemployment kept jacking up... but it musta just been my imagination I guess.

Nov 06 08:51 AM

[Swashbuckler:]

Thanks for the article. I'd be all in right now among your selections, but instead I have decided that it is more prudent to allocate my investment capital to muti-level marketing, timeshares, Detroit real estate, and the North Korean economy.

Nov 06 10:03 AM

[Simi:]

i would be interested to know- why timeshares? i have been looking at those recently too.... would be great to get your input. thanks


On Nov 06 10:03 AM Swashbuckler wrote:

> Thanks for the article. I'd be all in right now among your selections,
> but instead I have decided that it is more prudent to allocate my
> investment capital to muti-level marketing, timeshares, Detroit real
> estate, and the North Korean economy.

Nov 06 12:41 PM

[User 494643:]

Unfortunately, the data included is highly flawed. The chart shows the dividend of these bank stocks based on the trailing 12 months. BBT, for instance, is shown with a 5.73% yield, which is highly deceiving unless one reads the fine print, because BBT cut it's dividend within the last 12 months.

The data is not misrepresented by the author, but the fine print will show the true color of the data. Some of these banks will see upside to their stock value as their dividends increase through TARP release and increasing earnings in the next year.

Nov 06 02:30 PM

[andruomail:]

I think he was being sarcastic & implying timeshares are in the same bad category as Detroit & N. Korea...


On Nov 06 12:41 PM Simi wrote:

> i would be interested to know- why timeshares? i have been looking
> at those recently too.... would be great to get your input. thanks
>

Nov 06 07:37 PM

[Swashbuckler:]

Simi---I have every intention of investing in timeshares, but first I'd like to get a case of the clap and then have a root canal.


On Nov 06 12:41 PM Simi wrote:

> i would be interested to know- why timeshares? i have been looking
> at those recently too.... would be great to get your input. thanks
>

Nov 06 11:44 PM