It pains me to say it, because I really like CEO Charlie Scharf. He did an excellent job at Visa (NYSE:V) and I think he’ll eventually do a good job at Wells Fargo (NYSE:WFC). But right now, Wells Fargo stock just doesn’t have any momentum.
No momentum on the charts, and no momentum in its business. Somehow, unfortunately, the company is still working its way through various legal headaches. While most banks face ongoing litigation, Wells Fargo has been among the hardest hit in this regard.
You know the saying, buy the smallest house in the best neighborhood? Well unfortunately, Wells Fargo isn’t a great house – nor is the neighborhood particularly attractive at this point.
Not only have the financials been buried thanks to the novel coronavirus sell-off, the group has lagged the market since the Great Recession. So what if they were hitting new highs in early 2020? The fact of the matter is, the Financial Select Sector SPDR ETF (NYSEARCA:XLF) has lagged the S&P 500 over the last one, three, six and 12 months, as well as over the last one, three, five and 10 years.
The Fundamentals Aren’t Attractive
Previously known for low valuations, attractive dividends and huge share buybacks, these catalysts evaporated thanks to Covid-19.
Buybacks are on hold, and in the case of Wells Fargo stock, the dividend has been crushed. The company’s one saving grace at one point was its high dividend yield. However, a few days ago the company declared a quarterly dividend payment of just 10 cents per share, down more than 81% from its prior dividend of 51 cents per share.
The forward yield is now just 1.65%, which dare I point out, lags even the S&P 500’s yield of 1.75% at this point.
For 2020, consensus expectations call for just a penny per share in profit following a 15.6% decline in revenue. In 2021, estimates call for a pitiful revenue rebound of just 0.7%. Next year’s profit forecast of $2.08 per share will be a big improvement if it comes to fruition, although it’s still down about 50% from the $4.05 per share WFC earned in 2019.
Based on 2021 earnings estimates, Wells Fargo stock trades at 11.7 times earnings. While cheap for most stocks, it’s not wildly cheap for its sector or in comparison to its historic valuation.
Let’s not forget that Wells Fargo has also churned out essentially flat revenue and earnings growth for multiple years now, even before Covid-19 hit.
For those that feel absolutely compelled to sniff around the banking sector, why not go with companies with some momentum? Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) absolutely obliterated earnings this quarter.
How about Bank of America (NYSE:BAC), which is a well-run bank with Uncle Warren scooping up stock hand over fist? Last but not least, don’t forget about JPMorgan (NYSE:JPM), which is routinely considered the best bank stock.
Wells Fargo Stock Has No Traction
How much is the trend not with Wells Fargo stock at this point? Just look at the daily chart. This thing is running on fumes. WFC shares are just 10.3% above the March low. That’s as the S&P 500 is up 50.3% and the XLF ETF is up 38%.
In other words, Wells Fargo is lagging its peers in a sector that is lagging the market. That’s not a good combination.
Wells Fargo stock is trading below all of its major moving averages and is clinging to support at $24. A break of support puts the May low near $22 in play.
WFC stock won’t have much momentum unless it reclaims the 20-day and 50-day moving averages. If it can, then perhaps bulls can get an upside squeeze going. However, I wouldn’t buy Wells Fargo and hope that development comes to fruition. Wait for it to confirm the action, first.