Wells Fargo (WFC) is scheduled to report fourth quarter 2021 earnings on Friday, January 14. The bank is expected to be one of the few big money center banks to show a significant increase in earnings for the lat quarter of 2021 from the fourth quarter of 2020 (when numbers were elevated by a big recovery from the Pandemic bottom.) The Wall Street consensus projects fourth quarter earnings of $1.09 a share, up from 64 cents a share in the fourth quarter of 2020. (I’d note that the bank has delivered a positive earnings surprise above analyst projections in the last 4 quarters.)
This is a good time to buy bank stocks. Banks make more money as the yield curve gets steeper in anticipation of multiple interest rate increase from the Federal Reserve and continued high inflation. (Banks borrow the money they lend out at the short end of the yield curve and lend, for mortgages and the like, at the long end of the curve.)
The economy looks to be strong enough to keep loan portfolios growing (albeit at modest rates) and to keep credit losses near cyclical loans.
My reasons for liking Wells Fargo at this time in this sector?
The bank is one of the top deposit gatherers in the United States with one of the best branch networks in the sector. (Deposits are cheap money for banks.) The bank excels in the middle-market loan space and its financial advisors network is solid.
But, and here’s the reason to like the bank now, Wells Fargo has been a very badly run bank. It has faced multiple scandals in its operations and lost trust of bank regulators to the extent that they slapped on a cap on assets on the bank. Not being able to grow an asset portfolio is a major disadvantage, let’s say, for a bank.
2022 is likely to be the year that Wells gets that asset cap removed. It might even happen in the first half of the year. That would provide a big boost for valuation–which would add to the price gains I’m looking for from the positive environment for banks in 2022.
The stock was trading at $56.18 at 1 p.m. New York time on January 12. I’m adding it to my 12-18 month Jubak Picks Portfolio today with a target price of $68 a share.
The stock pays a 1.43% dividend.
Wells Fargo was a YouTube video QuickPick on November 30 (https://jubakam.com/watch-my-new-you…pick-wells-fargo/). The shares are up 17.6% since that video post.
