Consider bank stocks' valuations before investing

— -- A: Bank stocks have gone from toxic to terrific on Wall Street.

Investors who feel bank stocks were unduly punished are hopeful the stocks can continue to gain. But it's important to remember banks are at the epicenter of much of the speculation around when the economy will bottom. If investors get a whiff of more worse-than-expected economic weakness or even troubles at the banks, a pullback by bank stocks could be quick and unexpected. And that's why financial stocks remain a somewhat risky place to be invested.

But what if you're prepared for the extreme risk of investing in bank stocks? Then your next decision would be trying to determine which bank stock to invest in. There are many ways to approach this issue, but bank stock expert Robert Maltbie of Singular Research suggesta this method:

Start by determining what the bank's tangible net worth is. You might also consider taking each bank's so-called Tier 1 capital, which is a measure of their more solid capital. The Tier 1 capital is disclosed for all the banks that accepted government money here:

For instance, Bank of America had Tier 1 capital as of Dec. 31 of $173.2 billion and Wells Fargo had $86.4 billion. Next, subtract the amount of Troubled Asset Relief Program (TARP) funds the banks received. Bank of America received $15 billion from TARP so its capital adjusted for TARP is $158.2 billion. Wells Fargo received $25 billion, so its capital adjusted for TARP is $61.4 billion. You can look up how much the banks received under TARP here: Who has gotten financial bailout money so far.