Wells Fargo & Company (WFC): My Favorite Bank Stock for 2013

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Wall Street banks have endured several years of volatile results.  After the 2008 financial crisis and the ensuing calamity that almost brought the nation’s entire financial system to its knees, America’s banks finally appear to be returning to regular profitability. However, to the dismay of bank stock investors, bank valuation multiples are still restrained.  After a spate of financial reports from banks including Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and Bank of America Corp (NYSE:BAC), it appears that Wells Fargo is on the most solid footing of our nation’s biggest banks.  As a result, Wells Fargo is my favorite bank stock for 2013.

Wells Fargo & Co (NYSE:WFC)Wells Fargo reported fourth-quarter and full-year financial results in early January. Wells Fargo seemed to provide solid results, reporting record fourth-quarter net income that handily beat earnings expectations. Full-year net income was up 19 percent year over year; earnings per share for the entire year came in at a record $3.36. Revenue for the fiscal year clocked in at over $86 billion, up 6 percent from the prior year.  And yet, the stock stood still after the results.  Consequently, the shares appear attractively priced at only 10 times fiscal 2012 earnings.

JPMorgan's and Bank of America’s Wild and Bumpy Rides

Last year, JPMorgan announced a huge $6.8 billion trading loss called the “London Whale.”  The stock went from $46 in early April to $30 two months later. There was even media speculation of a cut to JPMorgan's dividend. Since then, the bank's shares have recovered back to the mid-forties. JPMorgan seems to be trading at a reasonable price-to-earnings ratio of 9.5, but the massive trading losses put a dent in the company's fourth quarter results and will surely hamper the company’s ability to increase its dividend in the future. The London Whale aside, the bank reported solid fourth quarter results: revenues rose 10% on the strength of a 33% increase in mortgage originations. Earnings per share of $1.40 handily beat estimates of $1.16. However, shares of JPMorgan didn't rally to the extent one would expect, and the bank still trades below book value.

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