Shares of US Bancorp
How it got here
There haven't been a lot of happy days for investors in bank stocks recently, but one unsuspecting company has given something for investors to cheer about. Amid trading turmoil at JPMorgan Chase
This is like a tortoise-and-hare story, with the slow and steady bank's strategy of making loans and providing banking services to customers proving to be more profitable for investors than dealing massive amounts of complex derivatives and proprietary trading. Over the past five years, this has led the stock to outperform giants such as Goldman Sachs
The reason for the stock's outperformance is easy. US Bancorp leads the pack in return on assets and return on equity, and it has earned a higher price/book value than its competitors. Not only is the more conservative approach proving more profitable, but the market is giving it higher multiples as well.
|
Bank |
Price/Book |
Return on Assets |
Return on Equity |
Forward P/E |
|---|---|---|---|---|
| US Bancorp | 1.9 | 1.6% | 14.8% | 11.0 |
| Goldman Sachs | 0.7 | 0.4% | 5.2% | 7.9 |
| Bank of America | 0.4 | 0% | 0% | 8.3 |
| JPMorgan Chase | 0.8 | 0.8% | 9.6% | 6.7 |
| Citigroup | 0.4 | 0.6% | 6.2% | 6.0 |
Source: Yahoo! Finance.
What's next?
So can US Bancorp keep moving higher? The basic problem for banking stocks is the risk they pose to investors who don't know what kind of ticking time bombs might be on their balance sheets. A more conservative balance sheet doesn't mean that US Bancorp doesn't pose a risk, but there is a smaller likelihood of massive sudden losses than with other banking stocks. For that reason, I think the stock can slowly move higher, but I wouldn't expect it to wildly outperform the market with the economy mired in a weak recovery.
The CAPS community also has high regard for the stock, giving it a four-star rating (out of five).
This is best-in-breed of the large banks, but we've identified another banking stock that is a great pick for individual investors. Find out which stock it is in a free report.
