The Five Best Large-Cap Bank Stocks to Buy Now

With new regulations crimping many of the ways that banks used to make additional revenue, the team at Baird is focusing on the banks with the largest core earnings power. They clearly favor the large-cap names over the smaller mid-sized regionals, as they see them better positioned to grow earnings domestically and through international channels. Despite having a large coverage universe, the analysts only have five stocks to buy that meet their criteria for outperformance in 2014 and beyond.

Here are the five top large-cap banks stocks to buy from Baird.

Capital One Financial Corp. (NYSE: COF) has continued running its string of quirky commercials to grow its credit card business. Capital One also offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. With more than 900 branches around the United States, the company has $206.9 billion in deposits and $289.9 billion in total assets as of September 30, 2013. Investors are paid a 1.7% dividend. The Baird price target is posted at $81. The Thomson/First Call price target is $81.67. The stock closed Monday at $71.37.

J.P. Morgan Chase & Co. (NYSE: JPM) is one of the top five names to buy at Baird. The company may be nearing the end of a very long stretch of losses and penalty payouts. Between mortgage settlements and trading gaffes, the company has taken a PR beating and has still held up well. The mega-cap bank is expected to benefit from commercial loan growth and an upturn in capital spending. Investors are paid a 2.7% dividend. The Baird price target is $65, and the consensus is at $65.23. J.P. Morgan closed Monday at $56.74.

PNC Financial Services Group Inc. (NYSE: PNC) is a top stock to buy and Executive Chairman Jim Rohr is well liked by major firms on Wall Street. His strong leadership and guidance have helped turn the bank into a Midwest and East Coast powerhouse. CEO Bill Demchak recently said that for years PNC has been “planting seeds,” to draw in new customers and as a result, it had “the opportunity to move these new clients toward the depth of product penetration we enjoy with our longer-term clients,” which ultimately represented “significant potential to generate new fee income.” Investors are paid a 2.2% dividend. Baird likes the new direction and has put an $83 price target on the stock. The consensus is even higher at $87.29. PNC closed Monday at $79.84.

U.S. Bancorp (NYSE: USB) is a top name to buy at Baird and also resides on the prestigious Goldman Sachs Conviction Buy list. U.S. Bancorp, with $364 billion in assets as of December 31, 2013, is the parent company of U.S. Bank National Association, the fifth largest commercial bank in the United States. The company operates 3,081 banking offices in 25 states and 4,906 ATMs, and it provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Investors are paid a 2.3% dividend. The Baird price objective is $44, and the consensus number is $43.50. The stock closed Monday at $40.08.

Wells Fargo & Co. (NYSE: WFC) makes the list and is the leader in the home mortgage category among U.S. banks. With risk moving out of the category, and rates going higher, banks like Wells Fargo are starting to offer 5% down mortgages to entice buyers. The company recently reported solid fourth-quarter earnings. The stock pays shareholders a 2.6% dividend. The Baird price target is $50.The consensus price target is $49.01. The bank closed Monday at $45.52.

While acknowledging the strengths of some of the other major banks, the Baird thesis is really quite simple. The analysts are making a valuation call, which eliminates many of the other names. That makes sense for investors looking to buy, given the gigantic run-up in bank names from the lows. Financials are a good part of any well-rounded portfolio. They need to be priced with some room for growth and not at the peak.