Superstar Investors Name the Top Banking Stock

With the banking brouhaha now a week old, and Morgan Stanley (NYSE: MS  ) apparently chasing Wachovia (NYSE: WB  ) , it's time to ask: Which bank can survive the fallout and deliver returns to investors? For the answer, we turn to our 115,000-strong Motley Fool CAPS community. Here, in order, are their five favorite banking stocks right now:

Top Banking Stocks

Recent Price

CAPS Stars (out of 5)

1-Year Return

US Bancorp (NYSE: USB  )

$35.00

***

11.4%

BNP Paribas

$47.26

***

(8.9%)

Royal Bank of Scotland (NYSE: RBS  )

$3.94

***

(60.1%)

Bank of America (NYSE: BAC  )

$34.15

***

(28.5%)

Popular (Nasdaq: BPOP  )

$9.95

***

(13.7%)

Sources: CAPS, Yahoo! Finance.

Salute US Bancorp
You've heard us say over and over that past performance is no indicator of future success. But it's also all we have. In a time of economic crisis that has seen many banks fail and most others waver, I think it's telling that Income Investor pick US Bancorp is up over the past year.

That tells me two things. One, Warren Buffett is still a super-genius. Two, US Bancorp's commitment to sustainable lending has created a margin of safety that many peers lack. Here's how our CAPS community rates USB:

Metric

US Bancorp

CAPS stars (5 max)

****

Total ratings

1,574

Bullish ratings

1,449

Percent Bulls

92.0%

Bearish ratings

125

Percent Bears

8.0%

Bullish pitches

275

Bearish pitches

18

Data current as of Sept. 22, 2008.

CAPS investor Buffantics crystallized the bearish view earlier this month. Quoting:

This stock is propped up by Buffanatics. So what if Warren Buffet is buying? What does he know about mortgage lending? [US Bancorp] was doing 100% financing with a 580 credit score! They did no equity refinances! They did stated, 100%! They are probably sweating their next earnings report right now. Hello people....they TRIPLED their loan losses in 1 quarter, imagine what the next quarter is going to look like. Go ahead though, keep piling into this stock. I love it! I just keep buying more put options waiting for October! Conservative lender my rear.

All-Star TMFMattyA expressed a very different view in the top bull pitch, which he posted in January. Quoting:

[US Bancorp] in my view is the safest of the major U.S. banks for playing a potential turnaround in the financial/banking industry in 2008 and beyond. Berkshire Hathaway's investment helps mightily with the thesis, but so does the 6 percent dividend yield, and the relatively negligent exposure to subprime (at least in relation to many of its peers). [US Bancorp] won't leap and bound, but it will be market-beater.

I'll add that USB's rising-but-still-low Texas Ratio -- 100% or more can indicate pending insolvency -- looks good, which tells me that Buffett is probably right:

Metrics (in mil)

TTM*

2007

2006

2005

90-day past due loans

$687

$584

$349

$253

Non-performing loans

$971

$557

$470

$544

Tangible book value

$9,164

$9,356

$9,432

$10,207

Allowance for loan losses

$2,518

$2,058

$2,022

$2,041

TEXAS RATIO

14.2%

9.9%

7.2%

6.5%

Source: Capital IQ, a division of Standard & Poor's.
*Trailing 12 months.

But that's my take. I'm more interested to know what you think. Would you buy US Bancorp at today's prices? What about Wells Fargo (NYSE: WFC  ) , another Buffett bank? Let us know by signing up for CAPS today. It's 100% free to participate.

Cap off your day with related CAPS Foolishness:

Bank of America, Popular, and US Bancorp are Income Investor recommendations. Berkshire Hathaway is a Stock Advisor and Inside Value pick, and both Tim and the Fool own shares of it. Try any of these market-beating services risk-free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers, ranked 21,853 out of more than 115,000 participants in CAPS, is a member of the market-beating Rule Breakers team. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool's disclosure policy is happy to lend its Street cred to other disclosure policies.


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