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.