Friday, July 22, 2016

Considering Wells Fargo (WFC)...

Does anyone else have Wells Fargo (WFC) on their radar as a potential buy?

For those of you who saw one of my recent "Time to Sell" articles, I just sold American Electric Power (AEP)  at a (thankfully) 17.9% annualized return; thinking it was pretty overvalued around $69 a share.

With that sell, I have some capital available to deploy, and am strongly considering Wells Fargo.

I've never really owned a bank stock in my dividend portfolio, and I tend to stay away from the Financial sector, almost always, but I think WFC deserves a look.  In fact, I should have bought WFC a long time ago back at like $28 (or something like that) a share when Warren Buffet made it one of his big holdings in Berkshire Hathaway.

Well, guess what - I just found out that Buffet bought even more a few months ago and now owns 10% of the company, making him their largest shareholder.

At around $48 a share, it has the following characteristics that make me strongly consider it:

  • 38% payout ratio.  Very low, safe payout.
  • Very low P/E...around 11.5.  Much lower than the S&P avg.
  • Nice yield...3.1%
  • Morningstar's fair value is $61.  So WFC is essentially 21% undervalued at current prices, according to their fair value system.
  • Performed well on the Fed's recent bank stress test
  • Oh yea, did I mention Warren Buffet has been increasing his position in WFC?  I realized a few years ago that I probably will do alright following this investor!  That is one of the reasons why I own BRK.B shares, one of my very few 0% dividend stocks
So what do you think? I'd love to get your opinion.  I think it is the only bank stock I would consider.  Check out this fact: 

Over the past three years, Wells Fargo has returned more capital to shareholders in the form of dividends and share buybacks than peers J.P. Morgan Chase & Co., Citigroup Inc. and Bank of America Corp.

I think I am going to go long, but am nervous about choosing a financial stock this long into a bull market (no pun intended! :).  I even recently talked about a possible recession. And I don't like the technicals in the very short term, as it could go back to 47s.  Probably will wait a week or so to see what happens to the RSI and MACD as shown below:

What do you think? Thanks for reading,

Passive Income Dude


  1. Have you considered or compared WFC to Canadian Banks like RY CM or BNS?

    1. Hey Ken-K, I haven't yet. I remember years ago when I followed them closer that they were much better than US banks - in terms of yield and consistent dividends. Is that still the case? I will start looking into them myself; thanks for the tip!

  2. I own and like WFC for the long term and it doesn't hurt having Buffett on my side of that one. To me WFC is probably the best investment from a traditional buy and hold. JPM is a close second and BAC is still more of a trade in my opinion. I don't trade in/out of BAC but it's still pretty undervalued so I'm pushing the decision off until later.

    1. Pursuit, that is good to hear that you like it for the long term, as I think that should be our investment horizon for almost all of our positions! I've definitely made that my strategy with mutual funds, and with my very small individual holdings I try to do the same but am not afraid to sell after a large gain. To your point about BAC, I think it is incredibly undervalued. How do you have a stock trading at 0.6 of tangible book value and not consider it undervalued! Why are you holding off on buying? Cheers,

    2. I already own some BAC and probably have a bit more exposure to the big banks (WFC, JPM and BAC) than I'd like. So I'm not adding here but BAC is still too undervalued in my eyes to unload it just yet. Of course if they really turn things around and start being a consistent dividend grower then I very well might just hold onto my shares for the long term.

  3. I'm long WFC, it's the best US bank to invest in. Have you considered Canadian banks? I think they are a better value right now.

    1. I haven't considered any Canadian banks yet. That's what Ken-K commented above that I should do too! I'm actually looking closely at BAC. They're trading below tangible book value, which is like a decade long wait for that kind of value play. Take care!