Investors are in Cash: Guess Which Buffett-Held Stock Benefits?

The cult of equity may already be on its deathbed. According to TrimTabs Investment Research, investors are in serious mattress-stuffing mode: For the first six months of 2012, TrimTabs estimates that bank checking and savings accounts attracted $356 billion.

US Demand Deposits at Commercial Banks Chart

US Demand Deposits at Commercial Banks data by YCharts

That’s nearly double the money that found its way into bond mutual funds and ETFs. Stocks? Net inflows for the first half of the year were a paltry $6 billion.

Clearly the national zeitgeist is that return of principal is more important right now than return on principal. Checking and savings accounts tend to pay about zilch these days. And what you’re getting on a 6-month CD leaves you way behind inflation.

6 Month Certificate of Deposit Rate Chart

6 Month Certificate of Deposit Rate data by YCharts

But while investors are settling for earning nothing, there’s money to be made off of this flight to safety…by the banks hoovering up depositors' cash. According to the latest FDIC rankings, the four biggest U.S. banks based on deposits are Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM) and Citibank, the bank arm of Citigroup (C).

Bank of America and Citigroup are still mired in financial crisis fallout. And JPMorgan seems to be moonlighting as a hedge-fund-in-disguise these days. Which brings us to Wells Fargo, one of the biggest stock holdings in Berkshire Hathaway (BRK.B), and a position that Warren Buffett has been adding to over the past year.

Wells Fargo has always been laser-focused on plain-vanilla banking. In the past year it has become the dominant player in the reviving mortgage market. But it’s also bringing in plenty of basic banking business as well.

In the second quarter, checking and savings deposits at Wells Fargo grew 12% compared to a year earlier. At the end of the second quarter Wells Fargo had more than $800 billion sitting in those accounts. That’s a whole lot of money to hit with fees. Through the first half of the year, Wells Fargo reported it collected $2.23 billion in service fees on deposit accounts, a 7% bump up from the same period last year.

That contributed to record quarterly net income in the second quarter.

WFC Net Income Chart

WFC Net Income data by YCharts

As for the competition? Wells Fargo continues to outpace JPMorgan on two key metrics:

JPM Return on Assets Chart

JPM Return on Assets data by YCharts

JPM Return on Equity Chart

JPM Return on Equity data by YCharts

Yet, while Wells Fargo’s price has rallied, its valuation, based on PE ratio, hasn’t expanded.

WFC Chart

WFC data by YCharts

For the money you aren’t stuffing in the bank, Wells Fargo stock -- and its 2.6% dividend yield -- might be worth a look-see as a bank with a money-making proposition.

Carla Fried is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.



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