And then there are those select few banks that are sitting pretty, because they remained prudent during the financial recklessness and malfeasance that precipitated the Great Recession. They're leaner and more competitive, with less debt and growing loan demand. Wells Fargo (WFC - Get Report) epitomizes this "best-of-breed" bank, a status that was confirmed this week by its robust operating results. Not only is the bank's earnings on the upswing and its balance sheet rock solid, but the stock also is trading at bargain basement prices.
The bank earned $5.44 billion after payments to preferred shareholders, or $1.05 per share, for the three-month period ending Sept. 30. That compares with earnings of $5.41 billion, or $1.02 a share, in the same quarter a year earlier.
Wells Fargo reported growth in loans throughout all of its business segments, from commercial and industrial loans to residential mortgages. The bank originated $55 billion in mortgages in the last quarter. Wells Fargo also reported a 6% year-over-year increase in deposits, to $1.2 trillion.
(Looking for additional stock values? One investor in a hundred may know the value-oriented strategy Warren Buffett used to build his first million. Even fewer know the system can be followed by anyone. Click here to learn more.)
This week, General Electric (GE - Get Report) announced that it had agreed to sell $32 billion in loans and leases within its U.S. commercial lending business to Wells Fargo, marking GE's quick exit from financial services and a major boon for WFC's future growth prospects.
Meanwhile, Wells Fargo boasts a long history of dividend growth. The bank was a leader in the banking sector in rebuilding dividends after the financial train wreck of the 2008 crisis, with the company's dividend growth resuming in March 2011. The company's dividend yield currently stands at a healthy 2.8%.
In the U.S., Wells Fargo is the largest bank by market capitalization; the second largest in deposits, home mortgage servicing and debit cards; and the fourth largest by assets.
Wells Fargo is a leader in the U.S. mortgage market, which continues to bounce back as the economy expands and joblessness drops. The bank's fortunes are often viewed as a barometer of the housing market; the sustained comeback in this sector will help boost the stock for the rest of this year and into 2016.
Wells Fargo also is diversified and offers wealth management and brokerage services to high-end clients, which in turn generate high profit margins for the bank.
Wells Fargo's modest exposure to investment banking, at only 5% of fees, provides a buffer from the market ups and downs that are likely to unfold in coming months, as a strong dollar hurts U.S. exporters and the global growth engine of China slows.
Indeed, weak economic data released this week, notably in the retailing sector, indicate that economic woes could loom ahead. If a downturn occurs, Wells Fargo would be in better shape than most of its peers to withstand it.
Wells Fargo holds $1.6 trillion in assets, which it funds more cheaply than its "Big Bank" competitors such as Bank of America (BAC - Get Report) , JP Morgan Chase (JPM - Get Report) and Citigroup (C - Get Report) because of its history of attracting low-cost deposits. The bank also imposes strict internal risk controls and high lending criteria, which help minimize write-offs for bad loans.
Wells Fargor's continued emphasis on prudence should hold the bank in good stead, as laissez-faire minded members of Congress currently propose legislation that would further deregulate banking and perhaps pave the way for a repeat of the "go-go" excesses that triggered the last banking crisis.
The stock's trailing 12-month price-to-earnings ratio now stands at 12.7, a bargain compared to the average P/E of 16.1 for the financial sector. Wells Fargo stock is a great combination of growth, safety and value.
Want to find additional stocks that combine growth, safety and value? Click here now.
By John Persinos
No comments:
Post a Comment