The Best Big Bank Stocks to Own: Wells Fargo, U.S. Bancorp

From the European debt crisis to a dearth of deal activity to low trading volume, investors in big bank stocks have plenty to worry about this year.

But some investors, like those in Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB), have less to worry about than others.

4 Stocks to Short Ahead of Earnings
4 Stocks to Short Ahead of Earnings

Wells Fargo, the nation’s fourth-largest bank by assets, and U.S. Bancorp, the fifth-biggest commercial bank and No. 1 super-regional, are not only benefiting from a resurgent mortgage market — they’re also getting a lift from what they are not.

Unlike JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) or Citigroup (NYSE:C), Wells Fargo doesn’t have much meaningful exposure to Europe or other international markets. And, as a regional bank, U.S. Bancorp is all about domestic lending.

That has helped both firms avoid pressure not only from the eurozone crisis, but also the hit to business that other banks — notably Citigroup — have suffered amid sluggish international growth.

Furthermore, Wells Fargo isn’t nearly as dependent on investment banking and capital markets as its bigger peers. And U.S. Bancorp doesn’t do investment banking.

That means neither bank has been hit by the slowdown in new issues of stocks and bonds or lack of mergers and acquisitions that has hurt everyone else, from JPMorgan to Goldman Sachs (NYSE:GS).

Rather, WFC and USB have been riding a stabilizing housing market to record results. All-time-low interest rates have lit a fire under mortgage and refinancing activity, and that’s boosting the banks’ bottom lines and prospects.

Wells Fargo, the nation’s largest mortgage lender, posted record profits in the second quarter. Once-in-a-lifetime-low rates have homeowners refinancing in droves, the bank said, and plain old retail banking grew, too. Consumers and businesses borrowed more money last quarter, with commercial loans, credit card usage and auto loans all showing improvement.

If there was any pain to be found Wells Fargo’s mortgage business, it was U.S. Bancorp’s gain. Wells Fargo, although still No. 1 by a long shot, lost some mortgage market share in the second quarter (to 32% from 34%) — and U.S. Bancorp picked some of it up.

The super-regional bank also enjoyed record quarterly results, helped by loan growth and more borrowers paying existing loans on time.

USB’s earnings beat Wall Street’s forecast by a penny a share, driven by an 8.1% gain in total net revenue and average deposit growth of more than 10%.

Like Wells Fargo, U.S. Bancorp is seeing a boost from record-low interest rates. Mortgage-banking revenue more than doubled vs. the prior-year period, driven by refinancings and new mortgage originations.

Additionally, loans to large and medium-sized businesses jumped 22% — another area where the bank is grabbing market share.

Wells Fargo and U.S. Bancorp are among the best-performing big bank stocks so far in 2012, killing the market and most of their rivals. Indeed, only beaten-down, too-big-to-fail Bank of America has performed better. And both USB and WFC have held up considerably better since the group’s peak in mid-May.

Since 3/19
Bank of America BAC +30.9% -25.7%
Wells Fargo WFC +23.2% +0.2%
U.S. Bancorp USB +24.7% +6.63%
JPMorgan JPM +8.7% -18.9%
Citigroup C +3.1% -26%
S&P 500 N/A +10.1% -1.3%

Healthier balance sheets, loan growth and stabilization in the housing market make Wells Fargo and U.S. Bancorp stand out as probably the best big best stocks for the second half of the year, if not beyond.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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