The SPDR KWB Bank ETF (NYSEARCA:KBE) has a Street consensus 12-month target price 11% higher than the last market price from 04/20/2012, based on application of the Street consensus of the individual constituents. It yields 1.67% after a 35 basis point expense ratio.
Alternatively, an investor might consider purchasing a collection of more highly rated banks within that index fund to achieve a higher target price change and a higher dividend yield.
For each constituent bank, this table presents the percent change from the market price on 04/20/2012 to the Street consensus 12-month target price; the yield; the sum of the yield and the percent change to the target price; as well as the P/B, trailing P/E, forward P/E and PEG.
There are 17 banks in the index with a 12-month higher percent to the target price, 21 with a yield greater than the ETF yield, and five with both a higher yield and higher percent to the target price.
It seems thinking back about all the Bloomberg interviews we have heard, that five banks are most often mentioned as the place to be: Bank of America (NYSE:BAC), Citi (NYSE:C), JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB). All but USB have a higher percent to target price than the ETF.
JPM also has a higher yield than the ETF. USB has a higher yield than the index, but a lower percent to target.
Only three are rated over 7 by the Thompson Reuters Star Mine method (0 - 10 where 10 is best): JPM (8.0), WFC (8.4) and USB (8.3). C and BAC are rated 6.0 and 6.6 (high neutrals).
Bottom line, it would seem that stock selection is the better way to go than owning the index ETF in this instance. JPM and WFC appear to be the top choices. Those two plus USB, C and BAC would probably be on a short list for consideration at this time.
We discussed the dividend prospects for those stocks in a prior article.
Disclosure: QVM owns USB as of the creation date of this article (April 22, 2012).
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