Which Bank Stocks Are Good Buys Now?

MarketsMotley Fool

In this edition of Industry Focus, host Michael Douglass and Fool contributor Matt Frankel discuss bank stocks. The banking industry has been one of the market's top performers over the past year or so. At these higher valuations, are any of them still worth buying?

A full transcript follows the video.

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This video was recorded on Oct. 23, 2017.

Michael Douglass: Let's go ahead and take a step back. We've talked about big banks, we've talked about their news, we've talked about what's going on, we've talked about how to analyze them. Well, are there any that are actually worth investing in today?

Matt Frankel: As a general statement, I think the potential catalysts we discussed are priced in at this point. Bank stocks, a lot of them have doubled in the past year or two, Bank of America (NYSE: BAC) being one. That's my personal biggest stock holding, Bank of America. But I don't know I would buy more today at the current price.

I personally like Wells Fargo (NYSE: WFC), if you have a long time frame to let the drama play out. They're still a pretty expensive bank relative to the industry, but not compared to what their business was valued at before the scandal started. So if they're successful in recovering from the scandal over time, this current price could look pretty cheap.

And U.S. Bank is always a good long-term investment. You really can't go wrong with that one at any point.

Douglass: It's expensive, and for a reason.

When I think about Wells Fargo, my general thing is, I think the key question that you need to ask before you choose to invest in Wells Fargo is, this bank really did well on a lot of metrics for a very long time, in part because they did an aggressive cross-selling culture. Can they retain that aggressive culture? Can they in some way effectively cross-sell their products and grow their revenue and their underlying earnings without these negative externalities that often come with that, which is, people trying to cheat the system, creating fake accounts, things like that?

If the answer to that is yes, then Wells Fargo is undoubtedly cheap compared to where it used to be. It's still reasonably priced by most bank stock standards. But if you're concerned about that possibility, I think Wells Fargo is a stay-away.

Personally, I don't have enough data points, so I'm staying on the sidelines. I actually don't own any of the big banks. I'm only invested in a small bank right now. But I'm going to be keeping an eye particularly on the turnaround at Bank of America, because I think that's a very interesting story.

Matthew Frankel owns shares of Bank of America. Michael Douglass has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.