I have written many times in the past year about Wells Fargo (NYSE: WFC) and since it is up another 23.66% today, I'd like to come back to it. As an investor I have done more than just blab (or blog) about it. I have been loading up on the stock, acquiring shares at $12.00 when the bears were ruling the market only a short time ago -- a very short time ago!In the last month, Wells is up an amazing 48.41%, and that for the safest bank in the United States. The stock closed today at $24.25, up $4.64.
In addition to buying the stock, I have been playing with naked put options at multiple levels. The extreme negativity in the market created a huge opportunity, so much so that I wrote Chasing Value: Will we be eating out of trash cans? which includes a discussion of naked put options.
So where do we go from here? To get a sense of fair value, I went back to calmer times, before the housing frenzy took off, and found that from 2001 to mid-2003, about two and a half years, Wells Fargo traded in the range of $25 per share. That was before it acquired Wachovia and before many of its competitors shrank or disappeared. During this same time, Wachovia was trading at around $35 a share.
Looking three years out, if one were to guess that a stabilized Wells Fargo combined with a stabilized Wachovia (discounting WB 20% for difference in capitalization to $28) were worth the sum total of the two, and add 15% to 20% for cost savings and added cross selling, then you would arrive at a stock price somewhere between $61 to $64 by 2012.
Maybe I'm a little crazy but I think that Wells is still a good bet to be 100% higher in three years. If the stock does have a pull back, as those of the more bearish persuasion are inclined to believe, I would consider adding Wells to your portfolio. It is still paying almost a 2% yield, even after cutting the dividend.
While the stock was up significantly today, not all the news is good. Earlier, it was reported that regulators told Wells Fargo that it needs to shore up its balance sheets.
The stock is up so much that I think it is more likely that a pull back of some kind will occur. Short interest has been squeezed out to a level now diminished to 0.15% of the outstanding shares, so the stock will not be the benefactor of continued short covering.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WFC and have open options as well.
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Reader Comments (Page 1 of 1)
5-04-2009 @ 7:36PM
Beltway Greg said...
Couldn't agree more. I've been trading this from $15.00. Today was a happy surprise. I certainly believe that $40-50 is attainable
based on the survivor factor. Merely navigating through this mess should get you a few points and support. Besides, "Our Pal Warren," is riding this pony. BTW, Mr. Buffett, if you're reading this give me a call. Not only did I beat the S & P last year but I actually made money unlike those dullards they're grooming to succeed you. Oh well, let's just make this our little secret. Besides, who reads these things anyway?
5-04-2009 @ 8:01PM
microcapmaven said...
Huh? WFC is merely the best of the worst of the big zombie banks. There are far better regional and small banks.
Even the feds think it needs more capital if the recession gets any worse and it will, even though we're in a sucker's rally now.
WFC may have made recent operational profits. Almost anyone can, if you give them free money and they loan it out at market rates. Unfortunately, they have lots of toxic decaying "assets."
5-04-2009 @ 8:20PM
bnfox1957 said...
good luck with those financials - you must be in for short-term gain.
5-04-2009 @ 9:07PM
al coholic said...
Let me borrow money at 0% and loan it at 5 for 6 % and I can make money too.
5-04-2009 @ 11:24PM
Craig Buck said...
Wells is one of the worst of the worst. They led the subprime market and are bumbling their handling of getting out of it. Talk to people dealing in the trenches and you will find story after story of Wells refusing to work with borrowers, turing down good short sales, foreclosing when it wasn't necessary, mishandling REO property and selling at huge losses. This stock is sugar coated right now and the whole thing is rotten to the core.
5-04-2009 @ 11:45PM
Sheldon L said...
Micro -- share your "...far better regional and small banks." otherwise your comment is worthless.
Craig -- stating "They led the subprime market..." is a complete mistatement of the facts. Countrywide led the way along with many others; WFC did not write subprime business in any meaningful amount.
5-05-2009 @ 8:50AM
nickerson said...
If the federal government would let these folks get back to doing their jobs instead of trying to black mail them, like your seeing in the Senate by the Democrats, lead by crook Sen Dodd, remember the guy who got the VIP for his mortgage that the average guy couldn't get and then his lieing about what he did on a bill, give us a break, put all these Democrats out of office, their are no moderates in the Democrat Senate, if their was they would show balls and stand up against the thug Dirty Harry Reid and his thug Durbin.
5-05-2009 @ 8:58AM
Beltway Greg said...
Another good buy? Legg Mason. Why, because they've cut the dividend and are finally starting to deal with the mess. That my friends is the anatomy of a recovery. Most people do not have the discipline, notice I didn't write intelligence, to trade stocks. Intelligence can be taught but discipline, not so much. GE at $25? Liked it, GE at $20? Sold it. GE at $6? Wanted to give it a ring and take it home to mom. Fundamentally different company? No, actually at $6 probably much worse but the possibility that it goes back to $20 much higher. Look at TIN. At $5 either one of two things happens. It recovers or some suitor steps in and takes it out of its misery. One of the things I check every day are the stocks which are upgraded, downgraded, and those that are rising/risen a disproportionate amount or those that are dropping a disproportionate amount. Most of those you can disregard because they are simply dollar stocks that caught a bump because of some rumor, (I leave those to the Timothy Sykes crowd,)
the others are ripe to be bought or be shorted. Lesson #1. I only short for short term, say one trading day at the most. I don't like to bet against American but I will bet against overreactions on the part of investment professionals and the advice they disperse. Remember, always trade the market in front of you, not the market behind you or the market you see in the future. Apple at $200? Yeah, I see that happening again but am I putting all of my eggs in that basket? No, at least not in the long-term. If they go into China or become a part of the dow I'll be painting the tape but until then.
And my pick for the derby? He finished 18th. Does a paramutual ticket constitute
a contract and can a horse and jockey be sued for breach of said contract?
5-05-2009 @ 9:01AM
Beltway Greg said...
"I don't like to bet against American ingenuity." (or greed of that matter) Most companies are like people, they need a near death experience to get them to change either their eating habits or their corporate
behavioral patterns.
7-20-2009 @ 8:16PM
Beltway Greg said...
Beltway Greg recommended Legg Mason at what $16? Today it beat and went to $26/share after hours and TIN is doing well also and let's not even discuss Apple.