There is one national bank that has endured the financial crisis without becoming a 'penny stock' (so far): Wells Fargo.Wells Fargo (NYSE: WFC) has taken advantage of other banks' exit from the market. Look for WFC to continue to benefit from an adequate interest margin, and higher mortgage banking revenue.
True, WFC wrote-down $37 billion of the acquired Wachovia's assets, but the view from here argues that moderate net-charge-offs moving forward will enable WFC to make it through the end of the U.S. recession without a catastrophe being announced, which makes the risk/return attractive. The First Call F2009/F2010 EPS estimates for WFC are $1.110 / $1.96.
Still, given the sector's woeful recent past, a tight Sell/Stop Loss has been set: $12. There is a 20-30% chance WFC will face even choppier waters in 2009 and 2010, particularly if the U.S. unemployment rate soars past 10%, leading to another large increase in home mortgage foreclosures; the more likely scenario is a 9.5% top to unemployment.
Stock Analysis: Wells Fargo is a high-risk stock. Consider buying a 20% position in WFC now; then buy another 20% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your WFC position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $12.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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