Wells Fargo & Co (NYSE:WFC) is the second largest bank in the U.S. according to the Federal Deposit Insurance Corporation, controlling 10.4% of all the total assets in the banking system. Only JPMorgan Chase & Co. (NYSE:JPM) is larger, controlling 13.2% of total assets. And where JPM’s challenges are becoming distant figures in the rearview mirror, WFC stock has just been rocked by a fresh new customer account scandal that has sent shock waves through the entire organization.
It was so significant, Congress demanded that Wells Fargo CEO John Stumpf come to Washington to testify in front of the Senate Banking Committee when the news was released.
When major events happen to a company, it’s always a good time to evaluate whether the news is going to hurt the stock or whether it will pass. If it’s the latter, then you have a great contrarian opportunity. And that is where we are with WFC stock now.
Wells Fargo stock hasn’t been doing well — it’s down 17% year-to-date. And this most recent scandal hasn’t helped.
But this is when staying calm and not getting emotional about a stock really pays off.
Don’t Count WFC Stock Out Just Yet
You see, WFC stock has a lot more going for it than its current troubles. And Wells Fargo has already taken aggressive measures to make sure there is no regulatory blow back from the situation.
WFC has stopped incentivizing sales goals for personal accounts, has fired more than 5,300 workers, the division CEO has resigned and lost her severance and bonus; and the CEO has given back his $41 million bonus for the year and will not collect a salary until the matter is resolved.
Wells Fargo acted quickly and made a good start at rectifying the situation, which helps keep regulators at bay. There may be some clawback issues, meaning the government may want to retrieve the monies that WFC overcharged its customers for, but this isn’t going to be significant.
Wells Fargo is a long-term stock and it’s a great long-term stock. When interest rates rise, which they may do by November, it will benefit WFC stock because it’s holding huge amounts of U.S. Treasuries, and if rates go up, interest payments go up.
And in an increasingly volatile market, Wells Fargo is still a symbol of safety. When rates rise and stocks slide, WFC is a flight to safety stock.
Bottom Line for Wells Fargo
Wells Fargo has also been around the block a few times in its 164-year history. And any bank that has the DNA of the bank that ran money from the East Coast to the Wild West by stagecoach, knows when it’s up against challenges and moves quickly to find a productive solution. It has also seen its share of economic problems and has always found opportunities in them.
And right now, WFC stock is trading at a low price-to-earnings ratio of 11 and is delivering a solid 3.3% dividend, better than all of its “too big to fail” compatriots. This is the ideal time for long-term investors to stake a claim to this enduring institution.
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.
