This morning Wells Fargo Bank (WFC) spread some sunshine reporting earnings of 55 cents per share (2 cents lower than the same period last year) versus the analysts average estimates of 49 cents. They have been closing branches, raising fees and seeing a reduction in loan losses with anticipated continued improvement looking forward.

The stock is up in morning trading and analysts are raising estimates as fast as they can backpedal out of their current positions.

How should investors view Wells Fargo's potential now? Is it time to take profits into the bullishness, jump into the fray before the opportunity escapes or hold tight patiently until the excitement of the day dissipates?

Wells Fargo (WFC) announced Wednesday that it will lay off 3,800 employees during the next year as the bank attempts to restructure its consumer finance unit. Wells Fargo Financial will be integrated into the company's community banking network -- closing 638 independent consumer finance offices in the process. The firm added that it is no longer going to deal with non-prime mortgage loans.

Reportedly, roughly 27% of the financial firm's Wells Fargo Financial employees will be laid off. In the next two months, 2,800 employees will be sent packing, while 1,000 more will be jettisoned in the next year. According to WFC, these changes will not affect WFC and Wachovia banks across the United States.

Stories are starting to appear that "my pal Warren" is gearing up for a major foreign acquisition. One of my dear friends Randy S. is taking a post graduate business class at UCLA where this issue is a part of the course. He is supposed to figure out what non US companies Berkshire Hathaway (BRK.A/BRK.B), led by Warren Buffett, might be considering for investment.

Ahh yes, the prediction business, quite tricky indeed. Starting with some basics, in most cases I would stick to the time tested philosophy that past performance is not an indicator of future success. That said, I think in the case of Buffett, it does. There are many clues along the trail based on his past performance.

Here are some basic consistencies from the existing portfolio that I would expect to hold true going forward.

Voltaire said, "Common sense is not so common" and George Bernard Shaw commented that having " ...enough of it was genius."

This reminds me of Warren Buffet, CEO of Berkshire Hathaway (BRK.A) or Steve Jobs, CEO of Apple Inc. (AAPL) that have both displayed plenty of the former and arrived at the latter in their business pursuits.

Derivatives like Collateral Debt Obligations, or CDO's, and Credit Default Swaps, get their value from something else entirely: total hype in an environment of smoke and mirrors.

It turns out that if you build layer upon layer of derivatives until you have no idea what the original underlying value truly is, it becomes so convoluted that a genius can't comprehend it at all. It is self evident that nobody could even determine all the counter-party risk.

Analyst Upgrades

• Thomas Weisel upgraded Deckers Outdoor (DECK) to overweight from market weight following channel checks. The firm also raised its target for shares to $170 from $162.
• Deutsche Bank upgraded Amerigroup (AGP) to buy from hold as it believes the company is well positioned to benefit from health care reform. The firm upped its target for shares to $42 from $38.
• Cowen upgraded Cubist Pharmaceuticals (CBST) to outperform from neutral, citing increased conviction in Cubicin's patent exclusivity.
• OmniVision (OVTI) was upgraded to strong buy from buy at Needham.
• Take-Two (TTWO) was upgraded to buy from hold at ThinkEquity.
• Wells Fargo (WFC) was upgraded to buy from neutral at Sterne Agee.

The market continues to be very volatile and trending down. When the seas are this turbulent you want to be on the biggest ships and thus I continue my review of the super cap stocks. This time, I'm going to examine return-on-equity (ROE) and return on-invested-capital (ROIC).

I started with the 12 highest valued companies but remained with 10 after running them through several screens. Among those 10 super, caps the company that is producing the highest returns is Microsoft (MSFT).

It's a cliché but it rings so true: just show me the money! In the case of stocks that's profits and distributions, or dividends.

The super cap review, in which I examine large cap stocks through different valuation methods, started with the 12 stocks with the highest capitalization and through several stock screens has been trimmed to just 10 stocks.

It has been widely reported that dividends contribute as much as 40% of the market stock appreciation on long term holdings. All things being equal, a diversified basket of dividend paying stocks should outperform a similarly diversified portfolio that does not.

In my search for value investments among the top twelve stocks by capitalization -- the "super caps" -- I began by reviewing the price-to-earnings and price-to-sales ratios. Today we will move on to examine price-to-book (P/B) and price-to-cash flow (P/CF).

If you are one of the lucky ones that benefited from the market's long rise from the depths of Hades and are now looking to rotate into less volatile positions, or you still remain apprehensive and want to stake out a new position, some of these super caps may be just for you.

Since early last fall, the majority of pundits have been saying that there would be a rotation from small cap stocks to the safety of large cap stocks in the new year. So far, the small cap stocks have maintained the lead, but a shift is taking place and the longer the bull runs and the worse global news becomes, the more this is likely to continue.

I have decided to examine the largest of the large cap stocks; lets call them the "super" caps; the top twelve as of May 13, 2010. Over the course of this series, the order will change and the bottom few may fade in and out as the market activity dictates. I may update the order, but for simplicity's sake will not change the stocks from the current list.

The negativity in the market place has been palpable for several years and is only thawing out now, in some people's view, while others rant about a "double-dip" or "W-shaped" recovery. In contrast to those who shun the market, I have been buying stocks at bargain basement prices over the past year with a return on investment that is "staggering," to quote a Wells Fargo Financial Consultant familiar with my account.

I am well aware that the record deficit spending in the United States is even more staggering. Everyone knows about the high unemployment rate, foreclosure rate, bank failure rate, and tepid consumer confidence. So why am I so optimistic about the economic recovery? Here's why, as simply as I can state the case:

"Berkshire Hathaway's Warren Buffet is a disciple of the teachings of Benjamin Graham and David Dodd, who made their fortunes by buying businesses that were selling for less than the value of their working capital (current assets minus current liabilities," notes Vita Nelson.

The editor of The Moneypaper explains, "The pair developed a Net Current Asset Value (NCAV) model to determine if a company was worth its market price. Their formula subtracts all liabilities, including short-term debt and preferred stock, from a company's current asset balance"

Yes it can. Berkshire Hathaway Inc. (BRK.B) can outperform Apple Inc. (AAPL) in 2010. That was my thesis in December (see Buffett's Berkshire vs Jobs' Apple for 2010?) and I still believe all the Apple hype in the world will still succumb to a solid value proposition in the long run.

While Apple was reaching new all time highs Berkshire was treading water through 2009. However, after a monster run-up Apple is taking a breather.

While we wait for details on the president's plan to break up the banks, I wonder why the banks can't decide to break themselves up?

Wouldn't it be so much better to break up themselves than wait for President Obama to do it for them? Investment banks specialize in mergers and acquisitions and the converse spin-offs. Mergers and acquisitions are big business for Wall Street and they happen all the time. In fact, that's how many of the banks got so big.

Banks have seen a hectic couple of days' of trading, thanks to a bevy of news. I thought it may be good to take a look at some earnings results from a few of the banks, and what it could mean for the economy going forward.

First, let's look at the earnings:

• JPMorgan Chase (JPM): earnings of 74 cents per share; expectations for 60 cents per share
• Citigroup (C): a loss of six cents per share; expectations for a loss of 33 cents per share
• Goldman Sachs (GS): earnings of $8.20 per share; expectations for earnings of $5.20

Analyst Upgrades

• FBR Capital upgraded Wells Fargo (WFC) to market perform from underperform and raised its target on shares to $26 from $21 following the company's better-than-expected quarter.
• Deutsche Bank upgraded Starbucks (SBUX) to buy from hold following the company's better-than-expected Q1 results. The firm raised its target price on shares to $30 from $19.
• UBS upgraded Dreamworks (DWA) to buy from neutral, citing upside from its upcoming film releases. The firm raised its target to $50 from $35.
• Colgate (CL) was upgraded to conviction buy from buy at Goldman.
• F5 Networks (FFIV) was upgraded to buy from neutral at BofA/Merrill.
• Applied Industrial (AIT) was upgraded to overweight from equal weight at Stephens.