US Bancorp (USB): Bank with Buffett

Jack Adamo has been a bull on U.S. Bancorp (NYSE: USB) and is now recommending doubling the position that he holds in his model portfolio. Here's the latest from his Insiders Plus newsletter.

"US Bancorp is accepting $6.6 billion in new capital from the TARP program. Tier One capital will rise from 8.5% to 11.4% as a result of the new deal.

"The company will issue preferred stock to the U.S. Treasury at an annual rate of 5% for five years, increasing to 9% per year thereafter if the company has not redeemed the shares. I doubt they'll go unredeemed.

"The Treasury Department would also receive 10-year warrants entitling it to buy common stock of U.S. Bancorp with a value equal to 15% of the amount of the preferred stock issuance.

"With Tier One capital already at 8.5%, USB obviously didn't need the Fed infusion. It said it saw it as a good opportunity to get cheap capital with which to take advantage of any acquisition opportunities. I agree with that.

"Those terms are very good. Compare them to the arm-twisting terms some companies have paid, e.g., the 10%, plus warrants, that Buffett charged GE. Incidentally, Buffett added 3 million shares of USB to his holding in Q3.

"I said about 18 months ago, before the market carnage started, that U.S. Bancorp was the single stock that I felt most comfortable with. That hasn't changed.

"With a dividend of 6.5%, a great balance sheet, and opportunities to take business from weaker banks in the years ahead, this is a truly safe place to put money for solid total returns for years to come."

Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.