This has obviously been great news for America’s biggest banks, whose profits and share prices have risen from the ashes along with the broader economy.
In the wake of second-quarter results from banking giants Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc (NYSE:C), what’s an investor to do with bank stocks right now?
A trio of stellar reports
Thankfully for investors, banks have returned to steady profitability. This has been met with a sigh of relief among bank stock investors, who watched in horror as their companies went to the brink of insolvency, and back, in 2008.
Those days seem like an eternity ago, especially if you go by the company’s earnings reports in recent quarters. Over the past week, the market has digested second-quarter earnings results from each of these banks, which have contained almost nothing but good news for investors.
JPMorgan and Wells Fargo & Co (NYSE:WFC) kicked off the bank earnings parade on the same day, and they each shined alongside their respective results. JPMorgan reported 14% higher revenue and stellar 32% growth in earnings per share. Wells Fargo & Co (NYSE:WFC), meanwhile, generated record quarterly earnings per share of $0.98, up 20% from the previous year.
Then, on July 15, it was Citigroup Inc (NYSE:C)’s turn, and the bank did not disappoint. Citigroup racked up 11% revenue growth and 41% diluted earnings per share growth, year over year.
Moreover, not only are these banks back to strong growth, their balance sheets continue to recover. Banks have done a commendable job repairing their books in the wake of the financial crisis, and that trend continued in the second quarter.
JPMorgan improved its return on equity by two percentage points, to 17% from 15% the year before. In addition, management noted that net charge-offs remained near historic lows in the credit card business and are now less than half the level seen last year in the bank’s real estate portfolios.
Wells Fargo, meanwhile, managed to increase its return on average assets by 14 basis points and its return on equity by 116 basis points versus the same quarter one year ago. Moreover, loan quality continues to improve, as the bank lowered its net charge-offs by $1 billion during the quarter.
Margins of safety remain
Even after such impressive runs in share prices of many of the nation’s biggest banks, there are still solid margins of safety embedded in these stocks that should comfort wary investors.
First, with respect to JPMorgan and Wells Fargo & Co (NYSE:WFC), investors are being compensated in the form of strong dividend yields. After recently ratcheting up their shareholder distributions, both Wells Fargo & Co (NYSE:WFC) JPMorgan outpace the broader market in terms of dividend yield. To illustrate, whereas the S&P 500 Index as a whole yields about 2%, both banks offer yields of approximately 2.75% at recent prices.
Moreover, and this is where I’d give an edge to Citigroup Inc (NYSE:C), these stocks are cheap when analyzed in the context of book value.
In its quarterly earnings report, Citigroup revealed its book value per share rose to $63.02, meaning new investors are still paying just 0.82 times book value for the company. JPMorgan is also cheap on this metric, trading at book value.
More conservative investors who may favor stronger dividend payouts should pick JPMorgan and Wells Fargo & Co (NYSE:WFC), two strong banks with reliable growth and dividend yields that significantly outpace the yield on the broader market.
On the other hand, investors with an appetite for risk who don’t consider dividend yield to be a requirement for investment, should pick Citigroup Inc (NYSE:C). Its significantly discounted valuation, and as a result stronger capital gains potential, may prove more valuable to some investors. The bank still pays just a token dividend, which won’t give you the downside protection of a strong dividend yield, but Citigroup is growing earnings faster than its two rivals.
In the end, there’s an investing case to be made for each of these stocks, and investors intent on profiting alongside the nation’s biggest financial institutions should consider buying JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo, and Citigroup Inc (NYSE:C).
The article These 3 Banking Giants Cannot Be Stopped! originally appeared on Fool.com and is written by Robert Ciura.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo & Co (NYSE:WFC). The Motley Fool owns shares of Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM)., and Wells Fargo & Co (NYSE:WFC). Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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