While Wells Fargo (WFC) offers a compelling story for investors going forward, here are four other longs for investors to consider:
J.P. Morgan (JPM): J.P. Morgan boasts a deep management bench led by CEO, Jamie Dimon. The company picked up Bear Stearns and Washington Mutual during the 2008 crisis, and was the first bank to repay money under the Troubled Asset Relief Program. JPM is on the road to returning cash to shareholders via larger dividends, and the increases we expect over the next year or two should be substantial. The financial reform bill and new Basel III rules should reduce long-term returns to shareholders but we do expect some whittling away of the impact of reforms by the 112th Congress. JP has some of the best risk controls in the business in its investment banking division, in our opinion, and the divisions contributions to earnings should hover around a quarter of total earnings over the long-run. We value shares at $56 apiece using a conservative 11.5% cost of equity.
American Express (AXP): Amex has a well-managed rewards program through its credit cards. Unlike competitors Visa (V) and Mastercard (MA), Amex can issue its own cards and obtains most of its credit card earnings from merchant fees. In a key distinction, the company is therefore levered to spending, including inflationary spending, and not lending. We think net write-offs of bad loans will continue to decline, and the market has not fully factored this into Amex's price. We think shares are worth around $53 apiece using an 11% cost of equity, and on the back of modest, single-digit revenue growth the company should resume modest dividend increases.
M&T Bank (MTB): The Manufacturer's and Trader's Trust Company originally serving workers on the Erie Canal is now 600+ branches strong clustered along the east coast with a strong position in the growing D.C. market. The company has a strong management team led by Robert Wilmers who has a good track record of conservative earnings growth. Longtime M&T shareholder Warren Buffett (whom we wrote about here) is picky when it comes to financials, and M&T makes the grade for banking conservatism. We value MTB at $90 per share, assuming just under 4% asset growth and a 10% cost of equity.
Suntrust (STI): Suntrust investors still took a drubbing during the 2008 crisis as the bank was forced to accept TARP relief, but the company has a promising road ahead of it. In its home market of Atlanta, many area banks are suffering, with Suntrust the first player to capitalize on competitors' woes. CEO James Wells became chief executive a year before the crisis hit which spurned a cost-saving initiative at the coaxing of investors looking for higher growth. The move was well-timed, as the company picked up hundreds of millions in savings to help buffer its finances during the ensuing fall-out. Population growth in the South should remain a tailwind for Suntrust, and net write-offs should continue to drop. We value the company at $36 per share using a 10.5% cost of equity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.