Banks, like Bank of America, Wells Fargo, and Fifth Third Bancorp, are often deemed "black-boxes" and branded as "too-hard" for investors to understand. One solution to this complexity is to have a consistent and quantitatively driven approach to analyzing bank stocks.
In the following video, Anand Chokkavelu sits down with Motley Fool analysts David Hanson and Matt Koppenheffer to discuss his four-step process for determining if a bank stock warrants a place in his portfolio. Anand highlights a bank's loan composition, deposit franchise, earnings power, and use of leverage to magnify equity returns. While Anand says that he prefers banks that have a long history of good loan underwriting and credit metrics, he admits that recovery stories like Bank of America can fit what he's looking for in a bank stock.
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Anand Chokkavelu, CFA owns shares of Bank of America, Citigroup, Fifth Third Bancorp, JPMorgan Chase, and Wells Fargo. David Hanson owns shares of Goldman Sachs and JPMorgan Chase. Matt Koppenheffer owns shares of Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase. The Motley Fool recommends Bank of America, Goldman Sachs, and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, Fifth Third Bancorp, JPMorgan Chase, and Wells Fargo and has the following options: short June 2014 $50 calls on Wells Fargo and short June 2014 $48 puts on Wells Fargo. 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.