Wells Fargo: Bank with Buffett

This financial stock is a solid value buy and a long-term inflation hedge.

By MoneyShow.com Oct 18, 2013 1:13PM
MonoeyShow.comFile photo of Wells Fargo & Co. signage at a bank branch in New York (© Scott Eells/Bloomberg via Getty Images)By Richard Stavros, Inflation Survival Letter

Wells Fargo (WFC) is the fourth-largest bank in the U.S. by assets and the largest bank by market capitalization. It is the second-largest bank in deposits, home mortgage servicing, and debit cards.

Its strong balance sheet and overall financial performance, particularly since the 2008 financial crisis, makes this bank a standout as an inflationary hedge.

The bank’s robust mortgage lending exposure and large bank depositors would help the firm access high quality and diverse lenders, which in turn would allow the bank to pass through rate or fee increases in response to increases in the price level.

Securities markets would be adversely impacted by an inflationary period. However, we believe the overall trend of baby boomers retiring and the need for investment advice, as well as the size of the bank’s brokerage advisory, would to a great extent offset negative impacts from declining stock and bond markets.

The bank’s low exposure to investment banking, at only 5 percent of fees, would also insulate the firm from financial losses as compared to other banks, as business activity declines.

Wells Fargo has a unique designation as a value investment; and we know Warren Buffett, the world’s foremost value investor, has long had Wells Fargo in the Berkshire Hathaway (BRK.A) portfolio.

The performance of the company in the last few years does bear out Buffett’s confidence in the stock. Last year was the fourth consecutive year of record profit. The firm grew its loans and deposits, despite an uneven economic recovery,  and grew revenue in a low interest rate environment that had pressured the bank’s margins.

Wells Fargo continues to show all of the hallmarks of what value investors seek. The bank boasts a price-to-earnings-to-growth ratio (PEG) of under 1 (which means it is fairly valued), while also sporting a dividend of 2.79 percent and low payout ratio of  57 percent, indicating the dividend has room to grow.

Finally, the bank has continuously looked after its investors, returning earnings per share diluted quarterly year-over-year growth of 19.51 percent.

As one of the strongest retail banks in America with little exposure to potentially problematic investment banking, Wells Fargo is the newest addition to our portfolio.

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5Comments
Oct 19, 2013 7:28AM
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Wells Fargo, the 4th largest corrupt financial institution stuffed full of fiat money and banksters, is a Black Hole like the rest of them, driving America to ruin. This bank needed to die in 2007-08, not be bolstered by T.A.R.P. and allowed to commit investment and credit atrocities guised as "business". Who really cares what "Buffett" buys... octogenarian billionaires are taking us to their graves. RUN AMERICA, RUN AWAY from the Black Hole. Decide your Fate... have a future... or be indentured in your future and the generations beyond for the financial follies and foolishness of today. Nearly $700 TRILLION in derivatives and counting.  

Oct 20, 2013 2:40PM
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Buffet is a friend of Washington.  Wells Fargo May be safe.  I will not take the chance of investing in it.  Look at Chase!
Oct 19, 2013 2:02PM
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We are a successful business and after many rounds of mixed signals of a refi and unfulfilled promises as to banking fees,  we found a major bank that kept its promises.  We removed all banking from WF no matter how profitable they are and now have a bank that believes in a policy of "mutual respect".

Oct 21, 2013 1:23AM
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buttfudge is a Globalist pig. Him and george Soros would make a great team for cement shoes and an ocean
Oct 19, 2013 11:14AM
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According to other MSN contributor's WFC is nothing more then a bond proxy.
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