If you opened up a Wells Fargo (ticker: WFC) checking account with $5,000 a year ago, you made somewhere in the neighborhood of 0.01 percent annual percentage yield. But if you invested that same amount in Wells Fargo stock, then boom — you made yourself more than $640, or close to 13 percent on your money.
Wells Fargo has delivered for shareholders in a big way and now boasts the designation of world’s biggest bank, with a market capitalization that’s just hit $300 billion. But if you think that means high-fives and dancing on the desks for the 266,000 employees of this San Francisco-based company, guess again.
“It’s certainly a nice recognition, but for us it’s pretty much heads down and keep your focus on your work,” Wells Fargo spokeswoman Mary Eshet says. “We have a steadfast approach as far as the culture, the vision and the focus. And before the financial crisis, and before we completed our merger with Wachovia in 2008, I don’t think anyone on Wall Street paid much attention to us.”
They sure are now. The closest competitor to Wells Fargo is the Industrial and Commercial Bank of China, with a market cap of about $286.4 billion. Meanwhile, Wells Fargo stock has proven steady (with a few dips here and there) going back to third quarter of 2009 — and more than doubling since.
“What’s not to like?” says Chris Bertelsen, chief investment officer at Global Financial Private Capital, based in Sarasota, Florida. He predicts that WFC’s annual dividend yield, which is already a healthy 2.6 percent, will increase by 52 to 55 cents per share by 2018 — an increase of more than 33 percent from the $1.50 payout that shareholders currently enjoy. “If you still believe, as I do, that in the long run valuation rules, then you have to like the financial sector and Wells specifically,” Bertelsen says.
Wells Fargo’s peers have also experienced good fortunes in the market lately. Over the last year, Bank of America (BAC) is up about 17 percent to just above $18 per share, while Citigroup (C) has risen 20 percent to top $60.
But investment in WFC stock comes without the jitters found in other bank stocks. Bank of America and Citigroup were among the too-big-to-fail banks bailed out to the tune of $250 billion through 2008’s Troubled Asset Relief Program. Bank of America shook up its leadership in 2011 and laid off some 30,000 workers to cut costs by $5 billion, while Citi engineered a 10-1 reverse stock split to prop up its sagging price.
And in March 2009, Citi’s price took a stomach-churning tumble to 97 cents a share, down more than 95 percent from the previous year.
“Wells was very well-positioned going into the 2008 market collapse,” says Derek Peterson, CEO and founder of Terra Tech in Irvine, California, and a former vice president for Morgan Stanley. “They were composed primarily of brick-and-mortar retail branches throughout the West. And because their balance sheet remained intact, they were able to use the crisis to make one of the best bank acquisitions in history with their purchase of Wachovia at a bargain price.”
It hasn’t been entirely rosy for Wells Fargo, at least in the short term. Shares have inched upward since the bank reported second-quarter earnings earlier this month of $1.03 per share. That’s up from $1.01 the previous quarter, but fell short of market expectations because it resulted from a drop in outstanding shares rather than increased earnings. For the year, WFC stock is up 6 percent.
But Wells Fargo stock still holds up as an investment with continued bright prospects. Pragnya Pattnaik, senior analyst at The Edge Consulting Group, says that Wells Fargo “has managed to perform better than most of its peers primarily through gains in market share, lower equity capital requirements and expanding relationships through cross-selling.”
And according to Pattnaik, WFC stock has lower volatility; its adjusted net earnings are up more than 4 percent between fiscal years 2013 and 2014, while Bank of America’s are down close to 58 percent. And since 2012, it’s the only bank to report steady rises year to year. Bank of America. Citicorp, JPMorgan Chase (JPM) and PNC Financial Services (PNC) have all bounced up and down over the same stretch.
By analogy, Wells Fargo resembles a consumer with a diversified portfolio. Its earnings are stable in large part because it has 90 lines of business divided into four major lines (wholesale banking, brokerage and retirement, community banking and consumer lending).
And if good standing with customers counts, consider that Wells Fargo finished No. 1 on the 2014 Strongest Financial Services Reputation List compiled by Makovsky, an independent integrated communications firm.
So for all the expert analysis and charting, Eshet may sum up a crucial element of Wells’ success best: “While it’s rewarding to see the market cap grow, it’s a result of what we’re doing every day and what we’ve focused on for years and years and years: the customer and the means they need to succeed financially.”
While Wells Fargo investors should always watch out for changes in key indicators, including slowdowns on the mortgage banking and earnings growth side, the future has only clear skies ahead for WFC stock, Pattnaik says.
“We notice that Wells Fargo continues to exhibit strong fundamental performance and has enjoyed a premium valuation multiple to its peers over the years,” she says. “And we believe that’s justified, considering Wells’ better profitability, well-diversified business model and consistent earnings performance.”
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Why Wells Fargo Is the Best Bank Stock Today originally appeared on usnews.com
