Just like Walmart where I made a recommendation in late October on Trader Planet and has since defied the market down-turn by gaining over 12% since, here is another great opportunity which has a high probability of a decent reward without taking much risk.
A recent 17% stock price drop in the past 6 months is allowing us to buy Wells Fargo, Charlie Munger (66% of his portfolio) and Warren Buffett’s (18.95% of his portfolio) biggest publicly listed positions in their respective portfolios on the cheap.
Please note, I am both a long-term deep value investor as well as a medium-term trader who utilizes the combination of both fundamental and technical analysis to form a view of every investment I make. Doing so I believe leads to low risk and superior market beating returns over the long run.
Fundamental Factors;
The Bad
Earnings per Share growth (EPS) is forecasted to be weak.
The Good
Valuation of over $57 based on the equity multiple valuation model, so Wells Fargo is significantly undervalued value at current prices.
Earnings per share growth has been excellent over the past five years.
Normalised Return on Equity (ROE) of just over 12% is more than satisfactory when compared to all other banks.
The net interest rate margin difference it earns from the borrowers and depositors is over 2.75% and will likely increase as the FED raises rates over time.
Technical Factors;
The Bad
Clearly broken the $50 key price support levels.
Currently below both 50 and 200 day moving averages.
The Good
The stock seems to be holding up at another key $48 price support level.
The stock is oversold on a variety of momentum indicators like the RSI.
Other Factors
For longer-term investments, I generally like to see who else is on-board with me and where the smart money has found its home. This list is most impressive with Warren Buffett, his partner Charlie Munger as well as Buffett’s ex stock picker Lou Simpson on the register with massive holdings.
In my opinion, actions always speak louder than words.
In this case, SEC filings report the following world-renowned deep value investors holding significant stakes in Wells Fargo.
Charlie Munger – 66.1% of portfolio managed
Warren Buffett – 18.95% of portfolio managed
Lou Simpson – 10.87% of portfolio managed
David Abrams – 10.18% of portfolio managed
Tweedy Browne – 7.69% of portfolio managed
And many others…
Conclusion
Wells Fargo (WFC) is significantly undervalued and temporarily out of favour but it is a fundamentally strong major bank with a dominant retail banking franchise and incredible smart money support.
I have just added more Wells Fargo (WFC) into our long term investing portfolio as there is significant buying volume picking up and the bargain was just too good to miss.
To see how you can easily identify undervalued leading stocks like Wells Fargo yourself, click here.
