Warren Buffett's Bank Stock Picks Show Value

NEW YORK (TheStreet) - Bank stock investors canvassing the industry for stock plays have a big decision to make now the nation's largest banks have reported earnings.

Should investors chase a long-expected earnings rebound at suffering banking giants like JPMorgan Chase (JPM) , Citigroup (C) and Bank of America (BAC) potentially lifting shares from single digit price-to-earnings multiples, or should they put their money behind a safer premium-priced lenders like Wells Fargo (WFC) , U.S. Bancorp (USB) , BB&T (BBT) and M&T Bank(MTB) ?

Second quarter earnings are proving once more that following Warren Buffett's bank stock investment plan in traditional lenders highlighted by Wells Fargo remains a simple and effective strategy in an industry marked by risk and hard-to-understand earnings.

Simply put, the 'Oracle of Omaha' has cast his money behind banks that are simultaneously growing earnings through bottom-line share repurchases and a top line mortgage lending rebound. At the same time, Buffett's been hesitant to put his money behind capital markets-oriented players like JPMorgan or pure-breed investment banks like Goldman Sachs (GS) and Morgan Stanley (MS) , which suffer from a Wall Street malaise, the burdens of new regulations and a slowly escalating European debt crisis.

The allure of their single digit PE ratios relative to the mid-teen price multiples of the likes of Wells Fargo, US Bancorp and M&T Bank hasn't yet appealed to Buffett.

By avoiding common stock bets on investment banks, Buffett's financial sector share investments have greatly outperformed most other investors, and second quarter earnings only reaffirmed his record. Since JPMorgan and Wells Fargo kicked off bank earnings season with stronger than expected earnings reports, it is the latter that has outperformed, according to Bloomberg data.

When looking over Buffett's bank stock portfolio, the outperformance is even more marked.