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My name is Jason, and I'm a motley investor.
When I invest, pretty much everything is on the table. Rather than sticking to one narrow class of investment, I consider all sorts of opportunities and will gladly add anything to my Rising Stars portfolio if it fits. Think of me as the Rule-Breaking-Value-Gem-Pro-Global-Advisor. True to that unpredictable spirit, the newest addition to my portfolio's watch list definitely represents a leap into the unexpected.
Bank on it
You may think I'm nuts, but I've been looking at banks. I perfectly understand why investors want to steer clear of their massive mess, and even moreso, why consumers don't trust them. But in the middle of all the gloom, I just know there's an opportunity waiting.
I've kept an eye on Wells Fargo (NYSE: WFC ) for a while now, and the company's latest 10Q doesn't seem too shabby. Net charge-offs are down 16% from the first quarter, and the bank's Tier 1 common equity grew to 8% over the third quarter, nicely exceeding the current Basel III requirements. And with access to the Southeastern market via the Wachovia acquisition (not to mention the backing of a well-known Berkshire Hathaway shareholder), I think Wells Fargo could be hiding some long-term value.
It can be a chore to understand exactly how well a bank is performing, and what it's truly worth. Metrics such as the net interest margin (the difference between the interest the bank is generating on its loans, versus the interest it is paying out on deposits), and efficiency ratio (expenses as a percentage of revenue) can help shed light on how these banks are doing, though. Check out the chart below to see how Wells Fargo stacks up to some of its competitors:
|Bank||Net Interest Margin||Efficiency Ratio|
|Bank of America (NYSE: BAC )||2.7%||62.3|
|Citigroup (NYSE: C )||3.1%||N/A|
|JPMorgan Chase (NYSE: JPM )||3%||60|
Source: Capital IQ, a division of Standard & Poor's.
Simply put, the higher the net interest margin, the better; it means that the bank is making more money on its loans. In regard to the efficiency ratio, the lower the better; it means that the bank is bringing in more revenue compared with expenses.
Should I write a check?
I've long thought that there may be some long-term benefit to owning bank shares. The financial crisis has thrown a huge monkeywrench in the entire sector, but facts are facts, and banking is a necessity. For better or worse, we need it for our economy to function. And among a banged-up sector, Well Fargo looks to me like the best of the bunch.