Wells Fargo: The Best Buy in Banking?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Wells Fargo (NYSE: WFC) is arguably the best investment in the banking industry today. Its stock price is comparable to JP Morgan (NYSE: JPM) while its market cap is significantly greater. Wells Fargo has a better history in regards to risk management and is making favorable investments to ensure its place as the leader in the banking industry in years to come.
The massive trading loss by JP Morgan has brought down Wells Fargo’s stock price only slightly, along with the other major banking entities like Goldman Sachs (GS) and Morgan Stanley (NYSE: MS). This recent situation has made it an advantageous time to buy stocks in the banking industry, while the stock prices are taking a dip. Any dip below $30 is a great opportunity to buy Wells Fargo’s stock from my prospective. At approximately $31, the stock price is currently on the higher end of its 52 week range, while it is also above the 200 day moving average of $29. Wells Fargo has healthy margins, close to optimum returns, a respectable dividend yield and an attractive price-to-earnings ratio.
Wells Fargo dominates the mortgage market, and is focusing its efforts on improving its brokerage business. The bank is also investing in energy R&D. These are key factors that make Wells Fargo a favored investment over its major competitors in the industry. Its diversified interests, combined with its history for conservative and responsible risk management make this the safest investment in the banking industry. Wells Fargo has provided more stable returns than JP Morgan, and should begin to increase revenues as it phases out of its transition from acquiring Wachovia.
Wells Fargo accounts for nearly one third of the mortgages originated in the housing market. Its mortgage origination and sales totaled 24% of all fee revenues and increased by over 7% from the last quarter. Wells Fargo has capitalized off of Bank of America's (BAC) inability to sustain its interests in this market. Wells Fargo is the largest U.S home lender and servicer, increasing profits by over $500 million since the last quarter of 2011. Its market share total is more than the next seven lenders combined. Refinancing transactions have been the major catalyst driving the growth that encompasses over 60% in this market for Wells Fargo.
Wells Fargo is also building its brokerage business by hiring some of the most prominent advisers in the country. This is a high commission venture that has low risk implications for Wells Fargo. The bank has recently added six advisers that managed over $1 billion in assets at their last firms. Since April, Wells Fargo has added 18 advisers that handled almost $2 billion in assets in its last positions with previous firms. It’s bringing these advisers in from all over the country to assist in bringing in revenue to the Wells Fargo Advisors Financial Network. Many of these advisers come from places like Citigroup (C), Merrill Lynch and other major competitors. The Wells Fargo Advisors is the third largest U.S brokerage measured by client assets behind Morgan Stanley, Smith Barney and Merrill Lynch.
Another big positive for Wells Fargo is its focus on businesses and ventures that support energy efficiencies and green technologies. Wells Fargo recently contributed a grant worth $500,000 to the UC Davis Energy Efficiency Center. It will have a seat on the board and will play an intricate role in the direction and implementation of the advancements in energy efficiency that come out of the center. The UC Davis ECC is one of America’s prominent research centers that focus on developing and commercializing technologies that are energy efficient in order to improve solutions for consumer and business applications. Wells Fargo’s main objective is to help accelerate the advancements and developing research related to green technologies and energy efficiency.
Wells Fargo has increased its market share in various sectors as well as its revenue and earnings all despite being in the process of assimilating Wachovia and its subsidiaries into daily operations. With this transition almost completed, Wells Fargo should begin to show an increased degree of growth and earnings for the remainder of 2012 and into next few years. The Wachovia acquisition made Wells Fargo the fourth largest banking entity in the United States, one out of three American households use Wells Fargo services. It also ranked in the top 25 of Fortune’s ranking of the United States largest corporations in 2011. Under the direction of CEO, John Stumpf, Wells Fargo has seen a profit for the last 13 consecutive quarters. This has been one of Warren Buffet’s favorite stocks for some time now.
Wells Fargo has been able to navigate its way through the tumultuous recession without taking on excessive risk, bad publicity or government intervention. With this latest news of massive trading losses from America’s largest and most trusted bank, the window of opportunity is opening for Wells Fargo to overtake JP Morgan as the most revered and coveted banking institution in the country.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.