Sound Banking – Better Investing
indar kumar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The banking sector has shown various trends in the past few months. Some underdogs have outperformed and have become a favourite whereas some major banks are proving to be risky.
U.S Bancorp (NYSE: USB) is driving high with its strong fundamental banking techniques. It is very much evident from the fact that the bank showed a profit of whopping 28% . US Bancorp's 0.61% sales growth in the past 5 years was only less than Wells Fargo's 8.9% and JPMorgan's 0.73%. These data put the bank in a solid commanding position as far as Wall Street is concerned.
The bank has been steady and growing organically in the last 21 years, barring the fact of its 50% retracement since the financial crisis. The stock trades at a healthy 2.59% dividend yield that it has been regularly paid out, regardless of the economic downturn. Furthermore, the dividend yield has been on the rise in recent years, owing to a stabilized economy. Standard and Poor thinks that the bank will continue to outperform its competitors and also has raised the bank’s long-term credit issuer rating from A+ to AA-, and raised its short-term credit issuer rating from A-1 to A-1+. Even, to this day, US Bancorp remains alert on small acquisitions to supplement its existing business without wandering from its conservative model of operations. This makes it a very good long term buy.
On the Other Hand.
While US Bancorp is proving to be a good long term holding, its peer The Citigroup (NYSE: C) is a good bet for the short run. The stock of the bank is moving sideways, which means that it is gaining strength. This indicates that it is prepared to move up the charts. UBS downgraded its stock from buy to neutral at target price of $36 which is understandable because of the growing concerns in the financial sector as a whole. In the second quarter the bank continued to go up till it reached the $35 mark in September. The stock is currently meandering in the early 30s so the best thing would be to trade it on a short term basis and keep track of any updates on the sector and its peers. JPMorgan (NYSE: JPM) considered to be USA’s largest bank is having a tough time. The bank’s total trading loss has swelled up to $6 billion and now it has been faced with lawsuits over fraudulent mortgage securities. The bank, though, did post a revenue figure that exceeded its consensus expectations by around 5%; however, the bottom line remained below expectations. One can go for this option if he wants a cheaper alternative in the short run as it trades at a discount of 25% as compared to Goldman Sachs which trades at a 17% discount. It is also stated that it will benefit from the recovery of the economy by the end of 2012. Thus, holding its shares for the time – being may prove fruitful.
Investing in financial sector may prove to be a risky option at present. The best way now would be to let some time lapse and review the sector after a month or so. However for the long run Bancorp seems to be an undisputed option – backed by Warren Buffet who owns 66 million shares of the bank. The other big names may be bought depending upon the investment aim of a buyer.
indarkb has no positions in the stocks mentioned above. The Motley Fool owns shares of Citigroup Inc and JPMorgan Chase & Co. 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.If you have questions about this post or the Fool’s blog network, click here for information.