This Financial Stock Will Boost Your Portfolio By 2013
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Over the past few years, many of the big banking institutions have been seen as the "bad guys," as they got bailed out with millions - or billions - and put back on track financially, while many of their own customers have were left holding the proverbial bag. Yet as an investor in at least some of these institutions, there could be certain rewards that are too good to pass up.
Although investor sentiment for many of the national and international banking institutions has swayed towards distrust and outright hatred, there is one regional bank, U.S. Bancorp (NYSE: USB), that has been providing investors with a regular and respectable dividend along with steady growth in spite of the roller coaster market of late. In this article, I will discuss why U.S. Bancorp could be a big winner for investors in both the short and long-term.
U.S. Bancorp is the parent company of U.S. Bank. And, even though this regional banking corporation's market cap of $65 billion is quite small compared to some of its mammoth contemporaries, this institution has performed very well over the past 12 months. U.S. Bancorp has nearly $13 billion in sales, coupled with income of nearly $5.2 billion and income growth in excess of 41%.
With U.S. Bancorp's earnings per share of over $2.70, investors receive a conservative yet steady dividend yield of just over 2.25%. Analysts continue to reiterate a Buy rating of the company, citing several strong points that growth in net income, record earnings per share growth (more than 18% in the second quarter 2012), 6% growth in revenue, and expanding profit margins. As a result of this solid performance, the company’s share price is up more than 41% over the past 12 months. Given all of these positives, I can't help but feel that U.S. Bancorp would be a great addition to any bank lover's portfolio.
What's Happening Around the Rest of the Banking Sector?
For investors who are looking beyond regional institutions, value may be found in Wells Fargo (NYSE: WFC). Wells Fargo is the biggest of the big when it comes to banks, with a market cap in the neighborhood of $185 billion. While the firm's dividend yield is just over 2.5%, share price is expected to rise roughly 10% over the next 12 months.
One big reason for this could be that Wells is considering the purchase of CIT Group. And, should this acquisition take place, Wells Fargo would be the proud new owner of approximately $35 billion in additional assets, in conjunction with a much higher amount of cash on hand. This means that even with the purchase, Wells' cash would not be materially reduced.
Another of the "big guys" in the world of banking is JPMorgan Chase (NYSE: JPM). Some feel that this stock is currently selling at a deep discount and, based on the overall banking industry outperforming the S&P 500, these shares could be poised for significant growth. The institution's market cap is roughly $157 billion and it holds consolidated assets of approximately $2.13 billion.
JPMorgan offers a nice 3% dividend yield for investors, and with a share price that is anticipated togrow by nearly 12.5% over the next 12 months, it too could help round out a portfolio that seeks both growth and income over the longer term.
The third largest bank in the U.S. is Citigroup (NYSE: C), with consolidated assets of roughly $2 billion and a market cap of just under $96 billion. Although Citigroup fell behind by roughly 8.3% in sales growth over the past 12 months, the firm still achieved more than 2% income growth for the same time period.
Unfortunately, Citigroup hasn't been able to avoid being fined for some recent trading violations, such as exceeding speculative trading limits in various commodities contracts. Yet even though the firm was punished financially, Citigroup still reported a nice cash flow of over $40 million for last year. In addition, over the next 12 months Citigroup's share price is estimated to rise by over 22%. So, although the dividend yield of 0.10% is nothing to write home about, the growth prospects for this company could more than make up for that.
One large entity in the banking sector that isn't faring so well is Bank of America (NYSE: BAC), with year-to-date numbers that are well below those of its contemporaries - including an operating margin of 14%, a profit margin of just over 11.5%, and return on equity of below 5%.
Another piece of not-so-good news for Bank of America is its upcoming initiative to slash its workforce by roughly 30,000 employees in an effort to become "more efficient." In line with the bank's overall poor performance profit-wise, this new round of layoffs will make Bank of America smaller in terms of total workers than JPMorgan, Citigroup, and Wells Fargo.
The Bottom Line
Although some of the bigger banks definitely offer more incentives for investment, I feel that the regional institution of U.S. Bancorp is the way to go for investors in the banking sector who are seeking good solid share performance.
Even though size-wise U.S. Bancorp pales in comparison to some of its bigger colleagues, this bank truly has it all in terms of earnings per share, solid income and revenues, and overall growth. It has caught the eye of numerous industry analysts, all of whom seem to have the consensus of either Buy or Strong Buy - and I completely agree. With a gross profit margin of over 81% and a net profit margin in excess of 25%, U.S. Bancorp has greatly outperformed the industry average - and will likely continue to do so over both the short and long-term.
Interested in Additional Analysis?
To learn more about the most-talked-about bank out there, check out the Fool’s in-depth company report on Bank of America. The report details Bank of America’s prospects, including three reasons to buy and three reasons to sell. Just click here to get access.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America, Citigroup Inc , JPMorgan Chase & Co., and Wells Fargo & Company and has the following options: short OCT 2012 $33.00 puts on Wells Fargo & Company and short OCT 2012 $36.00 calls on 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.If you have questions about this post or the Fool’s blog network, click here for information.