Bank of America (BAC), US Bancorp (USB), and Wells Fargo (WFC) can rise above the fray

The markets appear to be stabilizing and the investing world is getting its arms around the magnitude of the credit issues. But, invariably what happens in tough times is the good come down with the bad. Several pure mortgage players have been eviscerated in the mortgage debacle as subprime and otherwise suspect loans have come back to roost. However, do not lump Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and US Bancorp (NYSE: USB) into this category.

These three domestic banks have given very solid results for investors for both the March and the June quarters. Yes, they did take their reserves for bad loans to higher levels, but it did not cost them a quarterly miss or forward guidance reduction. The diversification of their earnings and revenue streams are just too powerful to be affected by the mortgage issues. Also, these three banks did not play in the riskier portion of the mortgage markets.

These banks however do stand ready to pick up market share of the mortgage market when the dust settles.

As the market absorbs the Fed's recent interest rate cut, investors will look to lock in yields. These big three pay superb dividends and have a terrific history of raising those dividends. USB yields 5.1%, Bank of America also pays 5.1%, and Wells Fargo pays 3.5%. All three sell at a discount to the S&P 500 current 2007 price earnings ratio of 15.5 times. They also have aggressive share buyback programs in place.

Normally I recommend bank stocks for superb yields and moderate growth. In this environment, these three stocks will offer great yields but also superb growth prospects. I can see price appreciation of 50% over the next two years for these three major players. The risk/reward profile is compelling and all three are strong buys.

Georges Yared is the CIO of Yared Investment Research and the author of Stop Losing Money Today.