Because of the onset of the novel coronavirus, the financial sector isn’t having a strong year so far. Wells Fargo (NYSE:WFC) is among the worst-performing big banks, and investors in Wells Fargo stock are understandably frustrated and losing patience.
However, this is not the time to cut and run if you’re a shareholder. If anything, you might consider adding more WFC shares to your banking-sector portfolio.
The history of Wells Fargo stock shows that it consistently rebounded from crashes, albeit not always quickly. Plus, Wells Fargo is taking steps to boost its chances of a recovery. As a result, you can view the low share price not as a problem but as a rare opportunity.
A Closer Look at Wells Fargo Stock
The 2008-2009 financial crisis is the most obvious example. But, there were other crashes in Wells Fargo stock and the share price always recovered. Just be advised that it might take a while for this to happen.
Indeed, there were substantial price corrections in 2015 and 2017 but WFC recovered from both. There was also a correction in 2019 and WFC was poised to stage a full recovery from that one as well.
Then the pandemic happened. WFC isn’t trading at its 52-week low of $22, but it’s much closer to that than its 52-week high of $54.75. Hence, there’s plenty of room for upside. With a trailing 12-month price-earnings ratio of 28.3, it’s fair to say that Wells Fargo stock is by no means overpriced.
Reestablishing the Brand
Since September 2016, Wells Fargo faced damage-control duty in regard to the company’s reputation. That was when Wells Fargo was formally accused by regulators of creating 1.5 million fake deposit accounts.
Additionally, Wells Fargo was accused of creating over 500,000 fake credit cards without the customers’ permission. Eventually CEO John Stumpf was fired, as were 5,300 low-level employees. Plus, Wells Fargo paid $142 million as the result of a class-action lawsuit.
Granted, $142 million is a pittance for a banking giant like Wells Fargo. The real punishment came in the form of a severely damaged reputation for the company. I recall reading postings on social media predicting the beginning of the end for Wells Fargo as a going concern.
Today, Wells Fargo is still a going concern. And, according to Mary Mack, the CEO of consumer and small business banking for Wells Fargo, the company measures its customers’ satisfaction “much more robustly” lately.
Moreover, Wells Fargo initiated efforts to reform its internal culture so employees aren’t incentivized to commit acts like creating false accounts.
Cutting Expenses
Along with rebuilding Wells Fargo’s reputation, it’s encouraging to know that the company intends to reduce its expenses. Specifically, Wells Fargo seeks to cut its expenses by $10 billion annually.
Unfortunately, this means letting go of a large number of employees in the near future. Wells Fargo plans to eliminate thousands of jobs in 2020, and the company intends to cut tens of thousands of jobs eventually.
In addition, Wells Fargo is very likely to close some of its 5,455 U.S. bank branches. This would be a reasonable cost-cutting measure since brick-and-mortar branches aren’t as important as they once were.
It’s not just young people who are doing their banking on their phones and laptops nowadays. The pandemic has kept some customers away from bank branches, so online banking has become a more practical alternative.
The Bottom Line on Wells Fargo Stock
It’s tempting to see Wells Fargo stock as a struggling asset with little chance of recovery. However, history shows that the stock recovered from corrections in the past.
Today, the bank is taking steps to ensure that its stock will, once again, recover from the crash.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
