Wells Fargo & Co (WFC): Wells Fargo Is a Safe Play

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Wells Fargo & Co (NYSE:WFC) was founded in 1852, which means it wasn’t selling the shovels to the Gold Rush 49ers, it was lending the money to the shovel stores.

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That’s foresight. It’s been this clear-eyed vision that has kept WFC chugging along for the past 160 years.

Wells Fargo also built the largest stagecoach fleet in the world to get its money safely across the continent when there wasn’t a lot of infrastructure west of the Mississippi. Sure, management could have used trains or hired a company to do it, but WFC knew then what got it to the 21st Century — when you want something done right, do it yourself.

Wells Fargo Today

There’s no doubt that after the Financial Crisis most of the money center banks have not been the pictures of vigor. And, this low-interest rate environment doesn’t help WFC business.

But remember, WFC is a bank, and banks have a lot of money, particularly reserves that have to be kept in liquid assets such as U.S. Treasuries. Since Wells Fargo can borrow from the Fed for next to nothing and get 2% or more on a bond, it’s pretty easy money. What’s more, Treasuries continue to rally, so it’s getting some serious capital gains on its bond portfolio as well.

The problem at this point, however, is that the economy in the U.S. (as well as the broader global economy) isn’t growing all these years later. When the economy is expanding at healthy levels, hiring is up, wages are up, home purchases are up and credit is up. All that is manna for banks.

Currently, the Fed is trying to encourage banks to loan money, but the banks haven’t seen the growth to support increased lending, so they have been very risk-averse regarding credit and loans to individuals.

This is a self-fulfilling cycle. But the good news for Wells Fargo is the fact that it is much more U.S.-focused than its competitors. That means it is in the best possible market when things do turn around, and for now, it isn’t hurt by the strong dollar and even weaker economies abroad.

Final Thoughts for Wells Fargo Stock

In mid-July, WFC released its Q2 numbers. While they weren’t impressive, they weren’t disappointing, either. Also, bear in mind that most analysts have higher expectations for Wells Fargo stock than they do for most of its competitors. Meeting expectations in this environment for WFC would be an earnings blowout for its unsteady peers.

Wells Fargo stock is off more than 11% year to date, largely because the profitability in its community banking division and its wholesale banking division has been treading water for the past few quarters.

But the fact is, WFC has seen plenty since 1852 and the company has survived tougher times than these. Wells Fargo is a leader among its peers, and that leadership should continue moving forward.

Also, don’t forget that, at current prices, WFC stock is throwing off a rock-solid dividend of more than 3%. As investors start to see the value here, these prices and these yields won’t last long.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/07/wells-fargo-wfc-stock-safe-play/.

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