OK, so pointing out the biggest bank out there isn't exactly a needle in a haystack.But, two thoughts:Mr Buffett has noted that, if he had to put all his money into one stock (implicitly not Berkshire, as that would be blowing his own horn), it would be Wells Fargo.Sure, he's not perfect, but he's better than most of us at assessing the long term risk/reward of a firm.That's a pretty good recommendation.How many banks are making a nice ROE over 10% doing mostly boring old deposits and lending?Growth tends to keep going after a weak spot, but value tends to bounce.S&P one year total return: +1.2%WFC one year total return: -15.5%.Banks have not been the flavour of the moment.Current EPS (Value Line's method) around $4.12.(last two reported quarters excluding extraordinary items, and two quarters of forecast)Stock price $46.88. That puts them at a P/E of about 11.38.Compared to a lot of things with multiples in the ionosphere, that seems not so bad.The nice thing isn't the rate of growth, which is pleasant but not exciting,but rather the notion that you can put quite a lot of your portfolio into it if you are so inclined.Proportionally speaking, that's less to manage in future, and more time on the deck with a beer.Jim(usually my second biggest position, though it's #3 at the moment)
I own a fair amount of WFC now and have for several years and a smallish position in a couple of other banks. I am heavy in REITs and really don't want to sell any yet since they have been so good to me and I am of the opinion that interest rates will remain low for a long time. However I also thought that 80 plus dollar oil was here to stay also. Seems to me WFC is a pretty good buy right now and buying more would help the risk I am assuming from rising interest rates by being heavy REIT's. Short story is I think WFC goes up near the top of the watch list.so......thanks for sharing your thoughts!
Might be wise to wait for Brexit vote on June 23. Even though WFC is a mostly US bank, the global market turmoil from a Brexit vote and central bank response driving down rates is almost certain to hit financial stocks. JPM may also be worth sticking into a watchlist, as it is likely to be affected more than WFC.Also consider using the TARP warrants to get leverage. Maybe be better than options, due to liquidity, better bid/ask spreads, and anti-dilution adjustments to strike price and number of shares/warrant.
Your analysis is about to be subjected to a severe stress test. My limit buy order just hit for $47/share.
WEB most always gets it right!....and their ATMs actually workA while back our card got eaten by this one.Still waiting...Main shareholders of Banca Monte dei Paschi di SienaAs of 10 March 2016 Fintech Investments 4.500%Ministry of Economy and Finance (Italy) 4.024%AXA 3.170%Classic Fund Management AG 2.008%The share owned by Fondazione Monte dei Paschi di Siena dropped from over 55% on 10 December 2009 to below CONSOB requirement to disclose (<2%) in 2015.
more time on the deck with a beerHopefully not crying into your beer. Given the recently downgraded ROE expectations by the management and lower rates continuing for longer time, why you think WFC multiples not to contract?In other words, if the ROE is going to slide to 11 and given US economic concerns, i.e., we had a good 4 or 5 years and are due to hit some challenges, why is it now the good time? I do understand the concept of find solid companies and allocate decent percentage and step back and let the company do the heavy lifting is a good strategy. Only caveat is you need to have a good entry point for this strategy. In my opinion they typically do about 15% return and they could be wiped out if you choose a wrong entry point and get panicked when the stock hits 15 or 20% declines in a bear market.
In other words, if the ROE is going to slide to 11 and given US economic concerns, i.e., we had a good 4 or 5 years and are due to hit some challenges, why is it now the good time?... In my opinion they typically do about 15% return and they could be wiped out if you choose a wrong entry point and get panicked when the stock hits 15 or 20% declines in a bear market. There will no doubt be better entry points during the next panic, whenever that is.I just thought today's price was not that bad.If your time frame is longer than a bull/bear cycle, I think it's a superiorquality firm at a (slightly) below average multiple.I think it's still worth 14 times cyclically adjusted current earnings, even if it doesn't trade at that much of the time.The revised return on equity target (11-14%) still dwarfs that of most big banks and pseudo banks.I also think there's a hidden silver lining: I think they are moving into thisresult because they are, more realistically than most others, positioning themselves for "lower for longer" rates.As for the bear market, the secret is not to sell during one.Then the low prices don't matter!Sure, if you're a great market timer, then you want the best performing thingduring the "up" and then switch to the best performing thing during the "down".But good market timers are notoriously scarce. Obviously no problem for you or me, but other folks find it tricky : )If you can't reliably switch horses halfway through the stream, what then?That leaves the slightly simpler and usually more profitable task is picking the firms that will almost certainly be the best performers between now and a comparable spot in the *next* bull/bear cycle.Pick the firms that will stick around and almost certainly grow in value through the cycle more quickly than typical.It's [only] in that context that I think Wells might be worth considering.Rolling-four-quarter earnings have been stagnant for 8 quarters, but they aren't exactly going bust.I think they're solid enough that "perpetual bond" thinking starts to make sense to a certain extent.3.21% (no inflation protection) on 10 year treasuries, or an almost-perfectly-inflation-protected 8.8% earnings yield on WFC?This view can be abused---you can justify almost any equity that way.But for a long view of a strong firm, I think it can give some insight.It certainly tells me that only idiots own bonds these days. Return-free risk.Jim
I think they're solid enough that "perpetual bond" thinking starts to make sense to a certain extent. 3.21% (no inflation protection) on 10 year treasuries, or an almost-perfectly-inflation-protected 8.8% earnings yield on WFC? I am not questioning WFC is a solid firm. Just wondering whether this is the time. I think the period for fully invested is long gone. So I am going to wait for the right opportunity. For me the risk-reward is not enticing. But if you are someone who wants to hold WFC for next 10 years then I don't see any reason not to buy.
I am not questioning WFC is a solid firm. Just wondering whether this is the time.I think the period for fully invested is long gone. So I am going to wait for the right opportunity. Can't really argue.Here's my fairly crude thinking.The price dipped to $46 this past week.It certainly wouldn't surprise me to see it at $40 in the next panicky market.It would however surprise me just a little tiny bit to see it trading much in the $30s again.So, if that hunch had any value (ha!), current opportunities are not a million miles from about the best entry you might have good chance of managing.$40 is only 13% below $46.I wrote some October $47 puts for $2.62, which might get me an entry of $44.38.Of course we might see *everything* get dirt cheap again, which is more than possible but can't be relied upon.It's always fun to remember what 1982 was like.Still and all, sitting on cash might be the best return these days.No visible return for a while, but an excellent return if you can deploy it at an opportune moment.Jim
an excellent return if you can deploy it at an opportune moment. I hope markets get volatile and we have the courage to follow through when the times are turbulent.
I think they are moving into this result because they are, more realistically than most others, positioning themselves for "lower for longer" rates. How? From what you infer this? I am curious to understand this. Possibly "lower for longer" may be with us longer :)
I think they are moving into this result because they are, more realistically than most others, positioning themselves for "lower for longer" rates....How? From what you infer this? I am curious to understand this. Possibly "lower for longer" may be with us longer :) It's in two parts.The first is their expectation, and the second is what they're doing to act on it.I know it's their expectation, as they say so, e.g. what their treasurer said in the recent quarterly conference call.They expect rates to be a lot lower than a lot longer than most other banks who are getting ready to start making money again when rates rise soon...or so they believe.The second is what they're doing about it, how they are positioning for that expectation.I'm not too clear on the details, but there are many things at the margin a bank can do.As I understand it, the biggest thing is sticking to holding more loans and with longer terms.If they went more with short duration and offloading more loans (more as others are doing), they could better roll into newer higher-rate loans when the rates rise.By having longer terms they make more while rates are low, but give up some of that opportunity to bump up quickly when rates rise. IF rates rise.As a specific example, Bank of America is towards the other end of the spectrum.Based on rate sensitivity disclosures, BofA says a 1% rise in the whole rate curve would bump their net interest income 15% ($6bn), Wells Fargo estimates only 2-5%.Jim
Bank of America is towards the other end of the spectrum. Alas, BAC is double and WFC is just spinning wheel...
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