Banking's behemoths are on a roll. Big-bank stocks have soared over the past two years, and the companies' prospects look bright, thanks to an uptick in business lending, better loan quality and cleaner balance sheets.
To be sure, the stocks are still well below where they were before the financial crisis struck five years ago. For example, Citigroup (symbol C) sold for as much as $552 in 2007 (adjusted for a reverse split in 2011). Today, the stock recently went for $49.
The hottest big-bank stock has been Bank of America (BAC). Its shares have rocketed from $5 in late 2011 to $13 today. BofA is slowly working through the disastrous results of a decade of acquisitions. Strong results and the belief that B of A's woes are finally winding down have driven the stock's ascent. The shares sell for 13 times predicted 2013 earnings. That seems expensive for a bank stock, but it looks like a fair price in light of expected annual earnings growth of 23 percent over the next few years.
Shares of JPMorgan Chase (JPM) continue to be held back by a London trading debacle that cost the bank a whopping $6.2 billion, says analyst Erik Oja, of S&P Capital IQ. Although a congressional report was highly critical of the company's leadership, including chairman and CEO Jamie Dimon, Oja thinks JPMorgan is among the nation's best-run banks. At $49, the stock sells for nearly 9 times estimated 2013 earnings and yields 3.1 percent.
An attractive big bank with a different focus is Capital One Financial (COF), one of the nation's biggest credit card issuers; it generates about three-fourths of its income from credit cards and consumer loans. The improving financial health of the consumer sector is driving down Capital One's default rates and helping to put the company in a position to meet increasingly stringent regulatory capital requirements well ahead of schedule.
In fact, the bank is so well capitalized that regulators recently gave it permission to hike its quarterly dividend sixfold, to 30 cents per share. At $59, the stock yields 2 percent and sells for 9 times projected 2013 earnings.
(Kathy Kristof is a contributing editor to Kiplinger's Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org. And for more on this and similar money topics, visit http://www.Kiplinger.com.)