Diverging Fortunes for Bank of America, Wells Fargo

Jim Sinegal: Third-quarter results really showed how much the banking industry has changed over the last decade. Wells Fargo, once the darling of the industry, has run into trouble and we think the stock is now cheap, while Bank of America is performing well on almost all fronts and the stock looks overvalued now.

In terms of expenses, Wells Fargo is having a hard time keeping expenses down with the problems they've had after the sales scandal. They also had $1 billion in legal expenses related to mortgage misdeeds this quarter. On the other hand, Bank of America is actually cutting expenses, down about 3% over the past year, while growing revenue.

Wells Fargo, on the valuation front, offers a nearly 3% dividend yield after falling after earnings, whereas Bank of America is now trading a few dollars above our recently increased $24 per share fair value estimate.