5 Bank Stocks You'd Be Crazy NOT to Buy

Citigroup (C)

In early March, Citigroup (C) was at the top of the list of banks headed for failure. With massive exposure to toxic assets and its management in disarray, it would be hard to argue with those betting against Citigroup.

But then the government stepped in and saved Citigroup. A line in the sand was drawn, and those on the right side of the line would be saved, and those on the other side would fail. Citigroup was on the right side of the line.

There was not a scenario whereby the government would let Citigroup fail. That alone provided enough justification for owning Citigroup in March. Since that time, the stock is up 72%. Shares have dropped a bit since peaking at $4 in May.

Now, at $3 per share, I would use the short-term weakness as an opportunity to buy. This is an easy double, and my target is $10 per share.

Wells Fargo (WFC)

Of all the large banks, Wells Fargo (WFC) has had the quietest time of it. There was minimal risk of failure here, thus, the need for the government backstop was much less.

Even so, investors pummeled WFC shares, and they traded for just $13 in March. About the only stumble made by the company was the acquisition of troubled Wachovia who itself made the disastrous purchase of Golden West Financial at the peak of the housing bubble.

Over time Wachovia is likely to be a great acquisition. In the short term, though, WFC is forced to fight hard to clean up its balance sheet. This week WFC announced that it had sold some $600 million. Interestingly, the bank received some 35 cents on the dollar at a time when hedge funds where only paying half that price.

It may not seem like much, but clearly the market is recovering as investors are willing to pay a higher price for risk. That bodes well for WFC and the other banks.

I would buy WFC at current prices, and my 3-year target is $50 per share.

TCF Financial (TCB)

The government backstop has meant more for the large money center banks than the smaller regional banks. As a result, TCF Financial (TCB) shares have gained some 28% as opposed to the bigger gains at the larger banks.

TCB was somewhat of a renegade with respect to government assistance. They paid back the TARP earlier than most other banks and made a cottage industry of being the bank that turned its back on government handouts. Such a position resulted in gains in deposits. With a steep yield curve, more deposits translate to higher revenues.

That said, the company still faces an uphill battle as regional economic difficulties result in defaults on both consumer and commercial loans. And fears of a blow-up in commercial loans may be keeping TCB stock down.

But I think such fears are overdone. The economy is turning around, albeit slowly. There is still time to own TCB at levels well below my $30 target.

Bank of America (BAC)

Embroiled in controversy over its acquisition of Merrill Lynch, Bank of America (BAC) has been our biggest winner since March, up 129%. Perhaps by taking the biggest risk in buying Merrill Lynch, BAC shareholders are being rewarded with the largest gains in share price.

It seems a bit silly for current CEO Ken Lewis to be crying wolf regarding an acquisition he himself said would be incredibly strategic in hindsight. The deal may become a poster child for the good and the bad of what transpired last fall, but has little impact on the future of BAC.

If Goldman is any indication, Merrill's activities are likely to be accretive to BAC earnings. The clean-up of the balance sheet continues.

Once free and clear of the carnage, BAC is easily a $28 stock.

SunTrust Banks (STI)

Of the stocks listed here, the future most uncertain is for that of SunTrust (STI). The company operates in parts of the country hit hardest by the collapse in housing. Without the benefit of diversified business operations, the recovery for STI is likely to be a bit more drawn out than Citigroup, Wells Fargo and Bank of America.

A Credit Suisse analyst expects STI to report a loss of 51 cents per share when it reports next week, a smaller loss than the current consensus loss of 63 cents per share. Shares of STI are up a modest 36% since early March. To the extent STI can return to profitability, shares are likely to continue rising.

I expect gains here to be muted though as key markets struggle to improve. My target for STI is $20 per share.