Believe it or not, one of the best equities to buy over the next 12 months may actually be Wells Fargo (NYSE:WFC) stock.

Yes. Wells Fargo. The beaten-up bank that’s being pummeled by headwinds both big (Covid-19, low rates, falling consumer spending) and small (consumer trust issues, branding problems, recent weak earnings).

Ostensibly, it may seem like you wouldn’t want to touch Wells Fargo stock with a nine foot pole. And the market isn’t. Shares are down 55% year-to-date.

But underneath the hood, there’s a lot to like about Wells Fargo stock, and enough positives that this beaten up stock could rebound in a huge way over the next 12 months.

What are those positives? Let’s take a deeper look.

Smart Money Moving In

The first big reason to like Wells Fargo stock is that all the smart people like it right now.

Multiple hedge funds bought WFC stock in the second quarter of 2020, including BlueCrest Capital Management, Duquesne, Appaloosa Management (run by David Tepper) and Soros Fund Management.

The average price target among Wall Street analysts for WFC stock is around $30, which is about 25% above today’s price.

And insiders are buying Wells Fargo stock, with the most notable purchase being a $5 million slug of WFC bought by the company’s CEO back in March, at prices above where the stock trades today.

In other words, hedge funds, Wall Street analysts and company insiders are all bullish on the stock at these levels. I think you should be too.

Improving Fundamentals

The second big reason to like Wells Fargo stock is that the negative economic backdrop the bank is currently operating against will gradually improve over the next few quarters.

The Covid-19 pandemic slapped America in the face. We were caught flat-footed and unprepared. Our economy and our people paid the price. But we are a resilient and adaptive country, and over the past few months, the U.S. has increasingly learned to how to deal with the pandemic without shutting everything down.

Move gyms, salons and retail shops into outdoor parking lots. Convert curbside parking at restaurants into outdoor seating. Re-purpose entire city streets and neighborhoods as open-air markets. Require masks and social distancing.

All of these things are happening, all across America, and the result has been rebounding economic activity amidst the pandemic.

This recovery will persist for the foreseeable future. As it does, Wells Fargo’s operating backdrop will improve. Consumer spending will rebound. The long-end of the rate curve will rise. Banking activity will recover.

This gradual improvement in economic fundamentals will be accelerated once we get a Covid-19 vaccine, which appears increasingly likely by late 2020 or early 2021. When that vaccine becomes broadly accessible to the general public, current restrictions constraining economic normalcy will be removed, consumer confidence and comfort will be restored, and we’ll see a big rebound in economic activity, back to pre-Covid levels.

Of course, that will act as a huge catalyst for Wells Fargo stock.

Big picture: Wells Fargo’s fundamentals are awful today, but they will only get better over the next few months as America gets better at the Covid-19 balancing act and as we inch closer to a vaccine.

Dirt Cheap Valuation for Wells Fargo Stock

The third big reason to like Wells Fargo stock is that shares are dirt cheap today.

Just look at these multiples for WFC stock:

• 1.3-times trailing sales, 55% below the stock’s five-year-average sales multiple of 2.9;
• 0.6-times book value, 57% below the stock’s five-year-average book multiple of 1.4; and
• 6.8% dividend yield, nearly double the stock’s five-year-average yield of 3.5%.

Across the board, Wells Fargo stock is dirt cheap.

It’s dirt cheap because the fundamentals are awful. But those fundamentals are going to improve. As they do, it will spark meaningful multiple expansion at Wells Fargo, and lay the groundwork for huge appreciate in the WFC stock price.

How much upside potential are we talking? My numbers suggest that prices above $30 are doable for Wells Fargo stock over the next 6 to 12 months.

Bottom Line on WFC Stock

Wells Fargo stock is too cheap here to ignore.

Improving economic and banking sector fundamentals over the next few quarters will converge on this dirt cheap valuation to spark a huge rebound rally in WFC stock.

I say buy the stock before that big recovery.