Is Wells Fargo Still The Safest Stock In Financials?

With shares of Wells Fargo & Company (NYSE:WFC) trading at $32.98 is WFC an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Wells Fargo doesn’t make as many headlines as Bank of America Corporation (NYSE:BAC) or Citigroup (NYSE:C). In many industries, that would be looked at as a negative. In the drama-filled world of U.S. banks, this should be looked at as a positive.

Wells Fargo has been one of the most conservative and responsible banks for many years. This company believes in lending like a traditional bank opposed to high-risk exotic schemes with a get-rich-quick appeal.

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When it comes to companies like Bank of America and Citigroup, it appears as though both situations have been turned around, and that’s likely to be the case, but we don’t really know for sure. There are always whispers about insolvency. These are most likely just rumors, but do you really want to take that chance as an investor? When it comes to Wells Fargo, you don’t have to worry about it; you can sleep at night.

Legendary investors Warren Buffett and Kenneth L. Fisher both have large stakes in Wells Fargo. Warren Buffett often states it’s his favorite bank, and Ken Fisher owns 18.6 million shares in Wells Fargo.

The positives don’t end there. Wells Fargo offers a 2.70% yield and has a Forward P/E of 9.06. In regards to analysts, 24 recommend Buy, 11 recommend Hold, and only one recommends Sell. Let’s take a look at a few more numbers.

E = Equity to Debt Ratio Is Weak, But Better Than Competitors

The debt-to-equity ratio for Wells Fargo is a little on the high side, but it’s much stronger than what else you might find in this sector.

Debt-To-Equity

Cash

Long-Term Debt

WFC

1.17

$178 Billion

$131 Billion

BAC

2.50

$567 Billion

$287 Billion

C

2.89

$797 Billion

$272 Billion

 

T = Technicals on the Stock Chart Are Impressive

Wells Fargo has performed very well over the past three years. What you might notice in the chart below is that Bank of American and Citigroup show violent moves over the past three years. While those two stocks enjoy their journeys over the hills and through the woods, Wells Fargo strolls along, rewarding its shareholders at a steady pace.

1 Month

Year-To-Date

1 Year

3 Year

WFC

-2.34%

21.98%

28.95%

27.73%

BAC

.51%

78.74%

76.21%

-38.48%

C

-8.86%

30.42%

21.81%

-15.41%

 

At $32.74, Wells Fargo is currently trading slightly lower than its 50-day SMA of $33.80. It’s also trading slightly lower than its 100-day SMA of $33.97. And it’s trading slightly lower than its 200-day SMA of $33.27.

 E = Earnings and Revenue Are Consistent

Earnings and revenue jumped substantially a few years ago. Since then, revenue has stayed around the same level while earnings have continued to improve. There was a decrease in revenue in 2011, but that shouldn’t be of concern.

2007

2008

2009

2010

2011

Revenue ($)in Billions

53.72

51.63

98.64

93.25

87.60

Diluted EPS ($)

2.38

.70

1.75

2.21

2.82

 

Quarterly earnings and revenue have also been consistent. While you might not see many substantial upside surprises, you always know what you’re going to get.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

21.26

22.09

23.00

22.61

22.48

Diluted EPS ($)

.72

.73

.75

.82

.88

 

T = Trends Do Not Support the Industry

It will take a long time for this industry to win the full trust of investors again. Banks are also doing their best to get back to their heydays of extreme profitability. While that’s not likely to happen anytime soon, many banks are finding ways to cut costs. For example, Citigroup cut 11,000 jobs today, which is 4% of the staff. This will save Citigroup over $1 billion per year by 2014.

The good is that Wells Fargo is looked at as a guiding light in a dark forest. If you don’t want to get lost, and you would like to be shown a longer yet safer way home, then Wells Fargo is the answer.

Conclusion

Based on all the information and analysis provided above, it should come as no surprise that Wells Fargo is an OUTPERFORM. Slow and steady wins the race.

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