Valuations And Comments For 5 Major Banks

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 |  Includes: BAC, C, JPM, PNC, WFC
by: Steven Bauer

Selecting five major banks to critique was easy these days. The media focuses on these companies most every day. Have you ever wondered, why?

The people and businesses of the world are dependent on banks. The bankers of the world are very aware of this fact. They don't think twice about grinding every penny out of their customers. That is because they perceive that they cannot fail so long as their government is reasonably solvent. Bank management has a history of failing to consider possible events that can be catastrophic. Governments just do what they must to keep the people and businesses believing all is okay.

The world economies are in much deeper peril than the public is being told by governments. I suggest that you view a video from the Economic Cycle Research Institute. Your watching this video on a very probable U.S. recession will be well spent. Perhaps you will see that because of the 'dependency' factor and the high probability of a meaningful recession in the U.S., that banks are once again in trouble.

I expect all these companies to eventually do well over the longer- term. Unfortunately, we just may have to wait for a while before taking long positions. My five selected peer companies are: Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), PNC Financial (NYSE:PNC), and Wells Fargo (NYSE:WFC).

My research methodology always compares the companies with their industry group. When the securities I valuate reach a high ranking (within my three disciplines) I buy them confidently. My three disciplines are all weighted, fundamental (40%), technical (35%) and consensus opinion (25%) analysis. You will note in my comments that I lean heavily on these three methods of doing my securities analytics.

Each of these companies is in sync with regard to balancing their fundamentals with their over-bought technical condition. Saying this in another way, they all have excellent fundamental current valuations, and their technical trends are in tack. However, the present technical risk is much too high to consider taking bullish positions in today's market. These five companies are each valuated and rated below with comments. They are not candidates for buying or short selling at this time.

Earning growth estimates for these companies are positive for the near-term; however, the longer term is questionable. Over the years, the way "The Street" will reward or punish any company in the future is never certain. It appears that the long-term upside is very strong for a number of other second tier banking companies. I prefer to invest in what I call the "second tier companies." These big guys just don't have the profit potential of other companies in this dynamic industry group.

My analysis, to a large degree, has to do with comparative analytics and much ongoing research. The process of comparing these five companies with their other peer (banks) is what makes my work a daily fun and profitable experience.

The current position of the banking industry group both domestic (U.S.) and international is quite favorable on my comparative ranking list of well over 200 industry groups. Over the short-term, this industry group definitely qualifies as favorable. Normally, I would expect the majority to hold up well during the coming months. The current problem is the condition of the general market. It is over-valued, over-bought and the bears seem to be making a move. The shares of nearly all the component companies in this industry group should likely be considered for purchase only at the conclusion of the anticipated bearish pull back in the marketplace. Over the longer-term, I am also quite positive about other industry groups in the technology sector.

Five Fundamental - Valuations with Comments

Valuation of Bank of America

Current Price:

$7.2

Comments: These are not overly strong Valuations and Target Price Projections. When I do further fundamental studies, the results neither improve nor decline. Projected earnings growth for BAC indicates there will be a strong decrease through 2015. My technicals are currently ranked as, "poor" as are the consensus opinions.

This suggests that BAC will continue to be a company to avoid.

Securities valuations should be updated and studied as frequently as possible. This work may or may not offer positive support or perhaps a negative warning. I do not recommend buying BAC in the current market cycle.

Target Price:

Plus 4-6+% / minus 20+% from the current price.

Trailing P/E:

n/a

Forward P/E (fye 12/ date):

6.8

PEG Ratio:

n/a

Price to Sales:

1.2

Price to Book:

0.33 - low

Dividend

0.56% - very low

Return on Investment (R.O.I.)

n/a

Valuation Divergence:

(minus) - 23% from current the price.

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Valuation of Citigroup

Current Price:

$26.50

Comments: These are definitely not positive Valuations and Target Price Projections. When I do further fundamental studies, the results definitely improve. Projected earnings growth for Citigroup indicates there will be an increase through 2013 and then a decline. My technicals are currently ranked as, "poor" as are the consensus opinions.

This suggests that Citigroup will continue to be a company to avoid.

Securities valuations should be updated and studied as frequently as possible. This work may or may not offer positive support or perhaps a negative warning! I do not recommend buying Citigroup in the current market cycle.

Target Price:

Plus 4+% / minus 20+% from the current price.

Trailing P/E:

7.4

Forward P/E (fye 12/ date):

5.6

PEG Ratio:

0.8 - low

Price to Sales:

1.1

Price to Book:

0.4 - low

Dividend

0.15% - low

Return on Investment (R.O.I.)

n/a

Valuation Divergence:

(minus) - 19% from current the price.

Click to enlarge

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Valuation of: JPMorgan Chase

Current Price:

$33.50

Comments: These are poor Valuations and Target Price Projections. When I do further fundamental studies, the results do not improve. Projected earnings growth for JPM indicates there will be an increase in 2013 and then a decrease through 2015. The technicals are currently ranked as, "good" but the consensus opinions are average.

This suggests that JPM will continue to be a longer-term question mark.

Securities valuations should be updated and studied as frequently as possible. This work may or may not offer positive support or perhaps a negative warning! I do not recommend buying JPM in the current market cycle.

Target Price:

Plus 4-9% / minus 20+% from the current price.

Trailing P/E:

17.4

Forward P/E (fye 12/ date):

6.1

PEG Ratio:

1.01

Price to Sales:

2.1

Price to Book:

0.7 - low

Dividend

3.60%

Return on Investment (R.O.I.)

n/a

Valuation Divergence:

(minus) - 22% from top of the next bounce rally.

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Valuation of PNC Financial

Current Price:

$62.00

Comments: These are average Valuations and Target Price Projections. When I do further fundamental studies, the results remain sanguine. Projected earnings growth for PNC indicates it will be modest but consistent through 2015. My technicals are currently ranked as, "very good" as are the consensus opinions.

This suggests that PNC will continue to be a company to watch carefully.

Securities valuations should be updated and studied as frequently as possible. This work may or may not offer positive support or perhaps a negative warning! I do not recommend buying PNC in the current market cycle.

Target Price:

Plus 6+% / minus 20+% from the current price.

Trailing P/E:

11.2

Forward P/E (fye 12/ date):

9.0

PEG Ratio:

1.8

Price to Sales:

3.2

Price to Book:

0.9 - low

Dividend

2.58%

Return on Investment (R.O.I.)

n/a

Valuation Divergence:

(minus) - 16% from current the price.

Click to enlarge

Click to enlarge

Valuation of Wells Fargo

Current Price:

$32.00

Comments: These are weak Valuations and Target Price Projections. When I do further fundamental studies, the results decline. Projected earnings growth for WFC indicates it will be good to very good through 2015. My technicals are currently ranked as, "very good", as are the consensus opinions.

This suggests that WFC will continue to be a company to watch carefully.

Securities valuations should be updated and studied as frequently as possible. This work may or may not offer positive support or perhaps a negative warning! I do not recommend buying WFC in the current market cycle.

Target Price:

Plus 4-8% / minus 20+% from the current price.

Trailing P/E:

11.0

Forward P/E (fye 12/ date):

8.7

PEG Ratio:

1.04

Price to Sales:

3.4

Price to Book:

1.2

Dividend

2.76%

Return on Investment (R.O.I.)

n/a

Valuation Divergence:

(minus) - 16% from the current price.

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Source of raw data: Yahoo Finance / Finviz.

Notes for the above tables: Target price is calculated and produces a probable range of the current price over the coming one to three months. Valuation divergence is calculated and produces a plus or minus percent of price over the following three to six months after a given bullish or bearish inflection point.

Data change over time, and therefore valuations must updated frequently.

Notes for the above charts: These charts are comparative with the S&P 500 ETF (NYSEARCA:SPY).

My Composite Ranking for Current Ownership of these Banks

BAC

Poor

C

Poor

JPM

Poor

PMC

Good

WFC

Good

Click to enlarge

Key: Excellent / Very Good / Good / Poor / Very Poor

Summary

Banking is currently not a strong or positive industry group. I do not expect that they will do well in my forecasted general market bearish time frame. Presently, all five of the companies are not trading in sync with their valuations and technical charts. That means they are currently out of favor with my analytics. I suggest that any valuation and technical opinion that is not totally positive (very good to excellent) are sufficient reasons for you to consider holding cash.

It is now clear that the economic crisis of 2008 profoundly altered Wall Street and the Banking industry. How they have adjusted to this change should be of deep concern to you. The methods and dealings with people and businesses is void of ethics and honest business practices. Many public and hidden cash infusions were made to preserve the banking industry. You will remember that smaller and venerable retail banks were absorbed by the large competitors.

The 2010 - 2013 economic crisis is returning us to those chaotic days. It was expensive for shareholders then, and it is already expensive for shareholders now.

Conclusion

I am bearish on both the economy and the general market. My more recent Instablog postings are focused on securities that should not be currently held in your portfolio. It is important for you to understand that holding cash during questionable time frames is a wise choice. (This is definitely a "questionable" time frame). This coming Saturday, I plan to add a couple more banking companies to my weekly Instablog update posting, check it out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.