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Wells Fargo Has Plenty of Upside

That said, if loan balances are rising, it suggests that consumers aren't paying. Management can, however, offset this weakness by growing other aspects of the business. I've said on more than one occasion, that given the bank's strong brand, Wells Fargo can certainly benefit from international expansion. Unfortunately, I don't think that management has addressed these sort of areas well enough.

Granted, the management team is well respected and has solid grasp of the bank's operation, but with loan balances on the rise, it was a surprise that management opted to expand its credit card business, suggesting that Wells Fargo plans to double its loan volume to (roughly) $50 billion. I'm not sure that this is the ideal strategy.

The degree to which raising credit loans can boost revenue and other operational deficits remains a question mark. Given that the competition from the likes of JP Morgan and Bank of America increased, it seems it would make more sense for Wells Fargo to attack back using its strength in mortgage lending, while looking to gain share in branch network and deposits. So, we'll just have to wait and see.

It's not all bad, however. While growth seems to have been impacted this quarter, the qualities that have made Wells Fargo so impressive still remain. Unlike JPMorgan or Citigroup, Wells Fargo continues to benefit from a business that is unburdened from unfavorable risk such as investment banking and significant exposure to the European market, which is still battling fiscal headwinds.

From an investment perspective, there will always be a premium placed on banks with above-average growth prospects that still meets certain criteria of safety. At $38 per share, there is still plenty of upside to Wells Fargo. The results of this quarter notwithstanding, the bank has consistently executed while showing strong leverage. With better improvement, these shares should reach $45 sometime in the second half of the year.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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