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3 Financial Stocks Worth Flirting With

AIG, SAN and WFC would look tempting after a small pullback

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Wells Fargo

wells fargo wfc stock

Wells Fargo (NYSE:WFC) was one of the “best” financial stocks during the meltdown and quickly recovered from deep declines seen in 2008 and 2009. It hasn’t been as volatile as peers, and has delivered a respectable 30% since January 2010 while the S&P 500 has delivered roughly 35%.

If you’re looking for stability in financials, nothing is a sure thing. But Wells Fargo is about the closest thing to reliable that you’ll get out of bank stocks these days. Here’s why:

Wall Street Targets Neutral at Worst: Some 35 analysts on Wall Street are watching Wells Fargo stock right now, and every single one of them has a target above current prices, according to Thomson/First Call. Nobody is expecting a doubler here — the median target is $39 — and most have a “hold’ rating on WFC stock in the short-term. But long-term investing with a 12% annual profit is nothing to sneeze at.

Strong 2012 Earnings: Wells Fargo reported record earnings of 91 cents per share in January — a 25% jump from the previous year — along with a 7% bump in revenue and a 3% growth in deposits. Furthermore, charge-offs against bad loans were lower by 19%. Those are all very encouraging signs that WFC has its act together going forward.

Dividend: If you like financials but also like dividends, the pickings are slim. Except, of course, for Wells Fargo. The company boasts a 2.9% dividend yield and has a very sustainable (and “stress test”-approved) payout ratio of less than 30%. That means this dividend is safe, and could grow more in the years to come with that cushion between earnings and annual payouts.

Secular or Cyclical Beneficiary: Whether you believe we are in a secular bull market that will last for another decade or whether you believe this is just the beginning of a cyclical run before another pullback, Wells Fargo is the place to be if you want exposure. That’s because no sector is more fuel for a bull market than financials, which are intrinsically linked to economic activity via consumer and business lending. If the economy and the stock market gains momentum, so will healthy bank stocks. And if not? Then Wells Fargo’s stability will keep you whole when things get rocky.

Mortgage Giant: As of 2012, Wells Fargo had a piece of 1 in every 3 U.S. mortgages. That’s a mammoth market share — and while business isn’t as brisk now as it was in the early 2000s, the scale more than makes up for the lower quantity in the broader mortgage marketplace. This is a great position for WFC as the housing market continues to mend.

Buy around $33: Again, I think a short-term pullback is in order, but I don’t expect Wells Fargo to collapse, and I think it’s pretty fairly valued right now. If you want to wait until things cool off a bit, target the $33 area, which is about 5% downside from here.

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