Wells Fargo Finally Sees Light At the End of the Tunnel

2020 has been a wild ride for Wells Fargo (NYSE:WFC). Since the start of the novel coronavirus pandemic, the decline in interest rates led WFC stock to lose half its value This led the bank to sustain a loss of $2.4 billion in its second quarter.

Dividends Are the Best Reason to Hold Wells Fargo Stock
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Adding to this, Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) recently sold a piece of its stake in the company and now holds just 136 million shares. And that doesn’t even scratch the surface of Wells Fargo’s regulatory issues. The bank has long been plagued by scandals that continue to impact its reputation in the financial sector.

While all of this points to a bleak future for the Wells Fargo, WFC stock actually has a lot of upside left as we close out the year. In October, the company reported strong Q3 earnings, hinting at better days ahead. Currently trading at 63% of its net book value, many investors see Wells Fargo as a good buy before the financial sector picks up again.

WFC stock may not be out of the doghouse yet but the path forward is certainly bright.

WFC Stock Has an Underdog Advantage

There’s no denying that the pandemic weighed heavily on the financial sector but Wells Fargo felt the heat more than most. After a massive decline in its share price and an 80% drop in dividends, investors lost all confidence in the stock. The bank continued to lag behind its peers for much of this year.

Since the pandemic lows of March and April, JP Morgan (NYSE:JPM), Citi (NYSE:C) and Bank of America (NYSE:BAC) managed to add 40% to their share price. However, WFC stock barely saw any movement in the months that followed until a recent rally. This has many bulls on Wall Street hoping for a much bigger run in the future. Given that Wells Fargo still has a lot of catching up to do, the current price presents a great buying opportunity before the stock soars.

This optimism stems from two areas. Many point to the fact that if the bank is able to manage its expenses and shed some of its costly asset cap, it could drive the stock price up significantly. The current asset cap is said to cost the company nearly $4 billion. This coupled with strong cost-cutting initiatives from its new CEO will really do wonders for Wells Fargo. However, the path to recovery still remains unclear at the moment.

A Covid Vaccine Rally

In addition to the potential removal of its asset cap, investors in the bull camp have a second reason to remain optimistic about WFC stock. The development of a Covid-19 vaccine by Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) signals the start of an imminent return to a post-pandemic world. Stocks across the board, including Wells Fargo, rallied as investors rejoiced at the news.

Following the announcement, Well’s share rose by a third and outperformed the recent surge in banking stocks. This led to a wave of upgrades by many analysts pushing its stock up by 8%. As reported by Barron’s, the firm Raymond James Financial (NYSE:RJF) anticipates the stock price will hit $32 in the coming months. WFC stock is trading around $29. Analysts at the firm attribute this optimism to several factors, including an increase in the pre-tax pre-provision income and expense cuts in 2021.

As the Covid vaccine fuels the pandemic recovery, WFC stock expects a strong December and an even better 2021. Given the dramatic drop in its share price this year, it only makes sense that an uptick in the stock is definitely in the cards.

The Bottom Line on Wells Fargo

Wells Fargo has had a rough couple of years with its reputation marred by a series of scandals and a dramatic dip in its stock price in 2020. Despite its problems, Wells Fargo is still is one of the largest and most well-established names in the financial sector. The bank is already on its path to dealing with the regulatory issues that first came to light in 2016. In addition to this, it also expects to exit the asset cap which is one of its biggest barriers to success.

These signs coupled with analysts’ positive outlook on WFC stock points to a brighter future for the company. The stock is at rock-bottom right now but this also means that it will only go higher. This makes it a worthy investment at its current price.

On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.

Article printed from InvestorPlace Media, https://investorplace.com/2020/12/wfc-stock-finally-sees-the-light-at-the-end-of-the-tunnel/.

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