One of the hardest hit business sectors during the recent global economic crisis, the finance industry saw the depths of despair before mounting a determined comeback. Although there have been investment opportunities throughout the past five years, it is only recently that some of those chances came in a form that could benefit the casual investor. With much of the danger passed, many large financials are poised to move higher, so it becomes necessary to consider investing in companies such as Wells Fargo & Company (WFC), US Bancorp (USB), Barclays Plc (BCS), UBS AG (UBS) and Morgan Stanley. (MS)
Wells Fargo & Company
This San Francisco-based banking giant has quietly gone about its business during the financial crisis; as a result, Wells Fargo is the largest bank in the United States. By many accounts, displacing longtime leader Bank of America was a result of the fact that Wells Fargo concentrates on traditional banking services, not being a pseudo-hedge fund that operates a banking operation.
Because of this approach, Wells Fargo is relatively healthy. The bank enjoyed record profits for 2011, with a net income increase of over $4 billion for the 4th quarter alone. As 2011 ended, its share price was sitting at just over $25 per share, hovering below its 50-day and 200-day moving averages. That trend would quickly change. A month later, the share price has surged to $30.50, and its one-year target estimate suggests it will challenge the top-end of its 52-week range of $22.58 to $34.25. With a dividend of $ 0.48 (and a yield of 1.60%) and a rising share price, WFC is an excellent stock to consider buying in 2012.
US Bancorp
Minneapolis, MN-based US Bancorp is another of the country's leading financial institutions. With a market capitalization of $54.34 billion, US Bancorp is the fifth largest bank in the United States, trailing Wells Fargo, JP Morgan Chase, Citigroup and Bank of America. Of that group, only Bank of America has a lower share price ($7.07) than USB at $28.50, suggesting investors should consider whether it is an acquisition candidate.
The numbers suggest that this bank is definitely one that should interest a number of people. After dipping to its 52-week low ($20.10 to $29.42) in August, the stock has surged. Now trading more than two dollars above its 50-day moving average and nearly $4 over its 200-day average, this trend seems to be continuing. Apparently, on a sustained run, the one-year target of $31.50 represents another jump of more than 10% for 2012. Paying a dividend ($0.50 for a yield of 1.7%) and enjoying a quarterly revenue jump of nearly 40%, investors should give US Bancorp a serious look as they add to their portfolios.
Barclays Plc
English bank Barclays Plc is another solid financial business that merits consideration as a stock purchase. This London-based bank has a market cap of $40.71 billion, which would make it the 7th largest if it were in the United States. BCS is currently trading at $13.64 and paying a dividend of $0.25 (for a yield of 1.8%) against its 52-week ranges of $8.38 to $21.69. Although it has been performing relatively well, Barclays, like its European brethren, is hurting from the continued debt crisis.
While its dividend ratio is a comfortable 33%, Barclays' quarterly earnings are down a difficult 38.4%, and it has a negative operating cash flow of over $56 billion. A forward P/E of 11.96 and a PEG ratio of 0.83 suggest that better days are coming, but the current struggles indicate any purchase might best be delayed until the European Union can negotiate an end to the struggles which the zone is experiencing.
UBS AG
Zurich, Switzerland-based UBS AG bank is next on the list to consider for a higher move in 2012. The 26th largest bank in the world, UBS has a market cap of $52 billion and is currently trading around $13.50 per share, with a 52-week range of $ 10.41 to $20.08. In spite of the banking uncertainty due to the debt crisis in Europe, this is one institution that appears capable of increasing its share price.
What UBS AG lacks in terms of being a non-dividend payer, it makes up for with stability. UBS has an asset base that has withstood the European pressures, allowing them to be more efficient than competitors like Barclays. With a trailing P/E of 8.89, a forward P/E of 9.44 and a PEG of 0.89, the company looks poised to prosper. In spite of the positive numbers, it's hard to overlook the European connection. For that reason, most investors might be wise to continue holding their current position until more information comes out on debt talks with Greece and the other struggling EU members.
Morgan Stanley
The 8th largest American bank, Morgan Stanley continues to impress as it continues to be a solid dividend and growth stock. The $35 billion company weathered a steady decline in 2011 that ended with the misfortune of a double bottom, pushing the share price from close to $30 down to almost $12 per share. Since that low, the price has recovered 50%, and currently sits at $18.15 per share with a $0.20 dividend and a yield of 1.1%.
Giving investors some good news, Morgan Stanley announced that it exceeded expectations for 2011. This came as a bit of a surprise, since the company's institutional securities business, which includes its investment banking and trading, was down significantly for the year. Nevertheless, the company has a forward P/E of 7.79 and a PEG ratio of 1.06, while still recording a 6.93% return on equity. Investors looking for a long-term stable holding could be very interesting in purchasing MS.
Taking Profits to the Bank
After a difficult four years, there is light at the end of the tunnel for many in the banking sector. Investors looking for the financial companies most likely to move higher will likely want to consider Wells Fargo & Company, US Bancorp and Morgan Stanley right now, with Barclays Plc and UBS AG being potential options when the European debt crisis has reached a resolution.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
