America's Largest Banks Deserve Your Investment
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Is there any value left in America’s largest banks during this economic recovery or is it all already built in to the stock price? I decided to take an in-depth look at three of America’s largest banks to see if I could find a worthwhile lengthy investment.
Wells Fargo (NYSE: WFC) has a market cap of $181 billion at the time of writing, which makes it America’s largest bank. The company has yearly revenues of $84 billion and is able to generate a $17.91 billion profit from them, giving the company a 21% profit margin.
Wells Fargo has returned 28% to investors year-to-date and I don’t believe it will slow down any time soon. The company pays out a 2.5% dividend yield and that dividend has grown 10.18% over the past three years.
A quick look at analyst forecasts for the company shows that they expect a FY 2013 EPS of $3.61 compared to $2.82 in FY 2011. Analysts who have placed ratings on the stock have given it a mean recommendation of 1.76.
In price to earnings terms, I would say that the current 10.8 of Wells Fargo makes the bank undervalued and there is definitely room for movement up. If looking at price to book or price to tangible book though, Wells Fargo becomes slightly over-valued when compared to the industry.
Bank of America
Bank of America (NYSE: BAC) has been on an incredible run over the past year, returning over 100% to investors over the time period. The company is one of the most traded on the NYSE every single day, which sometimes causes quite a bit of volatility that some investors may not be able to stomach. That volatility has resulted in a beta of 2.34.
Analysts have the same outlook on Bank of America as they do on Wells Fargo, a buy with a mean recommendation of 1.76. If you look at projected earnings for the company you’ll see that analysts expect FY profit to grow 138% between FY 2012 and FY 2013 -- that’s astronomical!
So, if the stock has already jumped over 100%, is there room for more? Incredibly likely. I don’t think it will reach pre-recession levels that were in the $50 per share range, but I definitely believe there is potential to push in to the $20s sometime next year.
JPMorgan Chase & Co. (NYSE: JPM) has been up and down this year. The company crossed the $45 per share mark in March and dropped back to the low $30 range by the time summer rolled around. From there on out it has been on a consistent path to trade at around the $44 mark.
Although not quite as favored as its counterparts, JPMorgan still receives a buy rating from analysts and a mean recommendation of 1.80. The bank is expected to take earnings from an FY 2011 value of $4.48 per share up to $5.30 by the time that FY 2013 comes to a close. While doing this, the bank will pay a dividend yield of 2.7%, a value that has grown 24% over the last three years.
JPMorgan is different from both Bank of America and Wells Fargo in that they derive more of their revenues from trading. Wells Fargo’s biggest division is mortgages while Bank of America brings in their money from personal and corporate banking.
The Banking Industry
I believe the banking industry does have room to grow. All three banks have over, or at least close to, $1 trillion in assets on their books. Since the recession there have been new rules about the use of this money but, for the most part, banks can use a hefty portion of this money in order to generate bigger revenues and higher profits.
I believe that every portfolio should have some form of exposure to the financials. If you want to go with one of the bigger banks then I’d be forced to recommend Wells Fargo. The bank is probably the most ‘loved’ of the three by consumers and they continue to make the right decisions.
Ash1402 has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America, JPMorgan Chase & Co., and Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!