Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Good Stocks

US Bancorp Gets Better

US Bancorp (NYSE: USB) has become the most appealing of the monster banks for a number of reasons.

The company; also known as U.S Bank, has a lower profile than larger competitors like Wells Fargo (NYSE: WFC) and JPMorgan Chase (NYSE: JPM). This makes it less of a target when politicians play “bash the banks” which has become a regular election time game.

Lack of Mortgage Exposure is good at US Bank

There’s also less exposure to the mortgage market which is still on some very shaky ground. U.S. Bancorp controlled around 2.8% of the mortgage in first quarter 2017, compared to the 16.3% that Wells Fargo owned, Forbes Great Speculations pointed out.

The volume of mortgage originations is falling dramatically dropping from $561 billion in 3rd Quarter 2016 to $361 billion in Quarter One 2017. That’s a decline of more than $35% or $200 billion in just six months.

Mortgage originations are falling for several reasons including high housing prices, low demand for certain kinds of housing, income inequality, wage stagnation, and lack of new housing starts. That might lead to a collapse in the mortgage sector, even with very low interest rates (3.04% for 15-year arm on 25 October 2017).

This lack of exposure helped US Bank whether the Great Meltdown of 2007 and it might help it through the next mortgage collapse; which is likely to sink or heavily damage Wells Fargo. It and financial numbers demonstrate that US Bancorp’s concentration on consumer and business banking is a shrewd strategy.

US Bank is making a Lot of Money

US Bank is making a lot of money and delivering better financials than some of its peers. USB reported a net income of $6.014 billion on September 30, 2017. That was a new high and it was slightly up from $5.891 billion in income from the same date in 2016.

What is more impressive is that US Bank is generating a lot of cash. It reported a free cash flow $1.89 billion on June 30, 2017. On the same Wells Fargo reported a negative free cash flow of -$4.233 billion and Citibank (NYSE: C) reported a “free cash flow” of -$19.37 billion.

More importantly, US Bank reported $7.431 billion in cash from operations and $22.17 billion in cash from financing on June 30, 2017. The company is making a lot of money from its operations and retaining value.

US Bank is definitely a Value Investment

In the value department, US Bank reported assets of $459.23 billion and $20.54 billion in cash and short-term investments on 30 September 2017. This provides float and points a value investment.

US Bancorp is definitely undervalued with a market capitalization of $91.22 billion and an enterprise value of $126.64 billion reported on October 31, 2017. That makes it close to a bargain at the $54.55 share price noted on the same day.

Investors will also like the 14.14% return on equity USB achieved on 30 September 2017. There’s also the 30¢ dividend paid out on September 28, 2017. That was up 2¢ from the 28¢ paid in May.

US Bank is definitely a Value Investment

If you are looking for a good alternative to the monster banks for your portfolio, US Bancorp is well worth a look. It is not taking the risks of some its peers, in particular, there’s little exposure to the credit-card industry as at Chase and Citigroup, and minimal mortgage exposure.

Even if traditional banking declines in the United States, which is likely given the dramatic growth of digital alternatives such as PayPal, US Bank should keep growing. The main reason for this is that USB lacks the ugly historical baggage that keeps dragging down larger competitors.

Simply the lack of the names Wells Fargo or Bank of America on the door will attract some customers. The lack of Wall Street connections will be attractive to some customers.

US Bank will remain a stable alternative to other prominent US banking stocks for the foreseeable future. That more than anything else makes it a value.