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:

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:

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:

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.

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