Last week, I spoke about the time for us to finally begin getting greedy when others are fearful as delicious bargains were popping up all over the place. It’s now time to take action.
Wells Fargo (WFC), the biggest retail bank by capitalisation is again on sale.
Having recently sold out of my large position at its recent peak, I wasn’t sure if I could pick up one of Warren Buffett as well as his long-time friend Charlie Munger’s favourite bank stocks again soon.
But a recent $185M fine and all the bad press of bank sales staff practices have created this opportunity. A $185M fine to a $232 Billion bank is literally peanuts financially.
Yes, its reputation has been slightly tarnished but it’s highly unlikely that it’s millions of customers will close their accounts and mortgages and switch over to another bank. This aint going to happen.
So is it finally time to re-accumulate Wells Fargo (WFC) at a bargain?
Its recent price reversal from a strong $45 price support limits our risk of ‘catching the falling knife’.
The following is what makes me to want continue adding Wells Fargo to my long-term portfolio over the coming days.
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, technical and macro 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
Wells Fargo has suffered from bad press lately due to illegal as well as immoral sales staff practices, opening accounts without customer’s full consent and knowledge.
Recent fine of $185M, although not large for a bank of its size, WFC will likely now be much more scrutinized by the banking regulators going forward.
A weak Earnings per share (EPS) is forecasted
The Good
Intrinsic valuation of $52-$62 (approx.), so WFC is currently well below intrinsic value with a margin of safety built in at current prices.
Warren Buffett would always say that “it is far better to pay a fair price for a great company, than pay a wonderful price for a sub-par company”, with Wells Fargo we actually get both. Great company at a great price.
A Return on Equity of over 12%, the biggest for all the major banks.
Earnings per share (EPS) have been strong over the past 5 years.
Undemanding P/E ratio of about 11
Strong dividends yield of about 3.3%
Technical Factors;
The Bad
Recent $50 key price support level was broken.
Price is currently below the 20, 50 and 200 day moving averages.
The Good
There seems to be strong price support at the $45 price level.
The stock is oversold on a variety of momentum indicators and buying volume is well above average over the past week.
Value seeking fund managers like myself will take advantage of this banking giant now on sale.
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.
In my opinion, actions always speak louder than words. Wells Fargo (WFC) is a widely held stock by smart money.
Charlie Munger – 67.3% of portfolio managed
Warren Buffett – 17.5% of portfolio managed
Lou Simpson – 11.66% of portfolio managed
David Abrams – 6.85% of portfolio managed
Tweedy Browne – 6.65% of portfolio managed
Chris David – 5.06% of portfolio managed
And many more…
Conclusion
Just over a week ago, I was fortunate enough to sell out of my entire large Wells Fargo position and lock in a sizable capital gain at close to its recent peak. I have been waiting to hopefully pick up one of my favourite stocks back again.
Fortunately, this has occurred much earlier than expected. As long as strong buying volume continues, I will be personally adding more Wells Fargo (WFC) into our long-term portfolio over the coming days. You may want to check out Wells Fargo (WFC) also.
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