Why This Banking Stock Is a Terrific Return on Investment

Why This Banking Stock Is a Terrific Return on Investment

This banking stock has a great track record of high asset quality.

US Bancorp ( USB 0.09%) makes money the old fashioned way, and has demonstrated success in doing so. In this clip from “The Rank” on Motley Fool Live , recorded on April 25 , Motley Fool contributors Matt Frankel, Jason Hall, and Zane Fracek discuss why US Bancorp continues to be a great dividend stock. Video Player is loading. Play Video

Play

Mute

Current Time 0:00

/

Duration 0:00

Loaded: 0%

Stream Type LIVE

Seek to live, currently behind liveLIVE

Remaining Time -0:00

1x

Playback Rate

Chapters Chapters

Descriptions descriptions off, selected

Captions captions settings, opens captions settings dialog

captions off, selected

Audio Track

FullscreenThis is a modal window.Beginning of dialog window. Escape will cancel and close the window.TextColorWhiteTransparencyOpaqueBackgroundColorBlackTransparencyOpaqueWindowColorBlackTransparencyTransparentFont Size100%Text Edge StyleNoneFont FamilyProportional Sans-SerifReset restore all settings to the default valuesDoneClose Modal DialogEnd of dialog window.Close Modal DialogThis is a modal window. This modal can be closed by pressing the Escape key or activating the close button. Should you invest $1,000 in U.S. Bancorp right now? Before you consider U.S. Bancorp, you’ll want to hear this.Our award-winning analyst team just revealed what they believe are the 10 best stocks for investors to buy right now… and U.S. Bancorp wasn’t one of them.The online investing service they’ve run for two decades, Motley Fool Stock Advisor , has beaten the stock market by 3X.* And right now, they think there are 10 stocks that are better buys. *Stock Advisor returns as of April 7, 2022 Matt Frankel: One of the larger banks outside of the Big Four in the country. About a $75 billion market cap. A great dividend stock, almost a 4% dividend yield. It’s probably the biggest pure-play savings and loan bank in the country. They don’t have any significant investment banking operations. They make their money the old fashioned way for banks. They loan out money, collect interest, take in deposits, pay out a smaller interest rate, and profit from the difference. They have a great track record of high asset quality. They’re one of the very few large banks that remained profitable throughout the financial crisis, which very, very few banks can say. Their earnings were positive even in ’08 and ’09. They have great profitability, over 15% return on equity, which for a bank is very, very high. And they trade for less than 11x earnings right now, which is a pretty low multiple. They trade at a premium to book value, which makes sense because they have such a track record of high-quality lending. Berkshire Hathaway ( BRK.A 1.05%) ( BRK.B 0.86%) owns about 8.5% of the bank. It’s their No. 8 stock holding. Any comments on US Bancorp, or do you just want me to launch into the next one? Jason Hall: Yeah, about 1.7x book value, but then you look at the return metrics. It is consistently one of the best in terms of return on equity, return on assets of all the big banks. So, well-run. Frankel: Yeah, you get what you pay for. Hall: Yep. Zane Fracek: I’m curious how they’re able to grow revenue so well when they’re doing it the old fashioned way like you said, just bank account deposits and loans. Hall: Well, they’re doing it this way too. Frankel: They’re doing it that way too, and you’ve got to figure: inflation is a net benefit for a bank like that. Take, auto lending. If the average new car cost $30,000 two years ago and then cost $40,000 today, that’s 33% growth in their average loan without them doing anything. So inflation gets passed on to the banks really well in that regard. Same with mortgage lending and things like that. Inflation is a net benefit to banks with the caveat that, if it gets out of control, it can lead to a slowdown in spending. But as long as inflation is manageable, it generally gets passed on to the banks. And you’ll see that terrific loan growth, like you mentioned, without the bank really doing much organically at all. And if they can grow organically, like Jason said, by embracing technology or things like that, it’s just a bonus. Jason Hall has positions in US Bancorp. Matthew Frankel, CFP® has positions in Berkshire Hathaway (B shares). Zane Fracek has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short […]

source Why This Banking Stock Is a Terrific Return on Investment

Leave a Reply