Battle of the Banks: BAC, WB, and JPM

I own 9 shares of Bank of America (BAC), and today I got paid my 3rd quarter dividend. I've been wondering for awhile now whether I own the right bank. I have a hunch I don't. Let's take a look. There are a lot of bank stocks out there, big and small. I decided to compare three big ones: BAC, Wachovia (WB), and JP Morgan (JPM).

Closing Prices
BAC closed at $50.27, WB closed at $50.15, and JPM closed at $45.82.

Advantage: None - just letting you know where they're livin'.

Cash and Debt
I should start by pointing out that all of the companies have plenty of cash on hand to pay their current liabilities (debts due in the next 12 mos.). That's really all that matters, but we're going to look at the cash on hand vs. total liabilities, just because I want to.

BAC owes just under 550B, and currently has just under 363B in cash. WB owes about 192B and has 80.77B in cash. JPM owes 432.5B and has 653.66B in cash. I know they would have no reason to pay it off right away, but I like that JPM could pay all it's debts if it had to for some reason. However, all you have to pay off is your current liabilities, and they all have plenty of cash to do that.

Advantage: JPM

Dividend
Both BAC and WB pay a 5.10% dividend. JPM pays a 3.30% dividend.

Advantage: BAC and WB

Price to Book Value
Book value is the shareholders equity in the company on the balance sheet. Price is the market price of that equity. In Benjamin Graham's famous book, The Intelligent Investor, he advises that a defensive investor should look for a company with a price to book value no greater than 1.5. This is difficult to find. Many modern companies have very high price to book value ratios. Bank stocks do, however, do pretty well. An updated version of the book provides commentary that concedes that this statistic has changed a little bit in modern finance, and that maybe some higher threshhold should be used. (This commentary was not written by Graham.)

BAC has a Price/Book Value (P/BV) of 1.69, WB has a P/BV of 1.39, and WB has a P/BV of 1.32. Both WB and JPM meet Graham's threshhold test, while BAC fails by a slim margin.

Advantage: JPM

PEG ratio
PEG is the the price to earnings ratio of the stock divided by the projected growth rate. So, if a stock had a P/E ratio of 10, and projected growth of 10%, it would have a PEG of 1.00, which would be quite low (if the other fundamentals are in order - BUY it!). Jim Cramer, host of the show Mad Money, gives a guideline in his book Mad Money, that any stock with a PEG of 2.00 or higher is overpriced and should be sold. This could also be said as - any stock trading at two times earnings (Earnings is stock-speak for profits). With that in mind, let's look at the banks.

BAC has a PEG of 1.40, WB has a PEG of 1.20, and JPM has a PEG of 1.05.

Advangtage: JPM

Conclusion
I would like to think that the stock I own is better than something out there...but out of these three, it is probably the worst. I did it, I own the worst bank stock. I am stubbornly going to hold onto it because I don't want to pay the 10 bucks it would cost to sell it and buy another. I'm kidding, we'll see what happens.

In other news, MYL closed at 15.96 down from yesterdays weekly high of 16.24. Still, if you bought it when I recommended it at 14.05, you're doing okay (13.5% in one month). I'm still holding out to sell it at $17.50. Stick with me, we'll get there.

The Cards are discussing trading both Anthony Reyes and Chris Duncan. I'm okay with trading Duncan, but I would hate to see those guys sell so low on Anthony Reyes. I half ass want them to trade all the veterans (Edmonds, Rolen) except Pujols and get set to make a run in 2009. Nah, I like for them to be good every year. Peace.