Hitch Your Horses to the Wells Fargo Stagecoach

NEW YORK (TheStreet) -- Usually disclosures are at the end of an article but on this one I need to be upfront.

Three years ago I retired from Wells Fargo ( WFC), I have family positions in Wells stock and also have family members still employed there.

For those of you who remember the TV show Dragnet, I'm going to try to take the advice of Sgt. Joe Friday and keep my comments to "just the facts."

For those of you who have followed my articles you know my personal preference is my 10/10/10 B+ rule. If you buy stocks that analysts think will increase revenue, earnings and price by at least 10% and has a B+ balance sheet or better, your portfolio will be a good one.

Wells Fargo doesn't hit all my benchmarks, but for those of you who just have to have at least one bank in your portfolio I think its a good choice.

During the past month the price of the stock has been up and down but enters my 30-day charts about the same place it is today and about even to where it was 30 days ago, as is evidenced by this hourly trading chart provided by Barchart:

For those of you who might think the stock's price has tracked the market I can report that while the market as measured by the Value Line Index was down about 4% in the last six months, the stock is up 2%:

Wells Fargo, through its subsidiaries, provides retail, commercial, and corporate banking services primarily in the United States. The company operates in three segments: Community Banking; Wholesale Banking; and Wealth, Brokerage, and Retirement.

The Community Banking segment offers deposits including checking, market rate, and individual retirement accounts; savings and time deposits; and debit cards. Its loan products comprise lines of credit, auto floor plans, equity lines and loans, equipment and transportation loans, education loans, residential mortgage loans, health savings accounts, and credit cards. This segment also provides equipment leases, real estate financing, small business administration financing, venture capital financing, cash management, payroll services, retirement plans, loans secured by autos, and merchant payment processing services; purchases sales finance contracts from retail merchants; and a family of funds, and investment management services.

The Wholesale Banking segment offers commercial and corporate banking products and services, including commercial loans and lines of credit, letters of credit, asset-based lending, equipment leasing, international trade facilities, trade financing, collection services, foreign exchange services, Treasury and investment management, institutional fixed-income sales, commodity and equity risk management, insurance, corporate trust fiduciary and agency services, and investment banking services. This segment also provides banking products for commercial real estate market, and real estate and mortgage brokerage services.

The Wealth, Brokerage, and Retirement segment offers financial advisory, brokerage, and institutional retirement and trust services. As of Dec. 31, 2010, the company served its customers through approximately 9,000 banking stores in 39 States and the District of Columbia. Wells Fargo & Company was founded in 1929 and is headquartered in San Francisco, California. (Yahoo Finance profile)

Factors to consider:

Barchart technical indicators:
  • 24% Barchart technical buy signal, with all the buy signals growing stronger
  • Trend Spotter buy signal
  • Trading above its 20-, 50- and 100-day moving averages
  • Trading about even for the month and about 2.56% off its one-year high
  • Relative Strength Index 53.7%
  • Barchart computes a technical support level at 33.36
  • Recently traded at $33.86, which is above its 50-day moving average of $32.98

Fundamental factors:
  • Widely followed on Wall Street where 30 brokerage firms have assigned 34 analysts to run numbers on this bank
  • The analysts project revenue will increase by 5.2% this year and another 0.30% next year
  • Earnings are estimated to increase by 14.7% this year, an additional 10.2% next year and continue by an annual increase of 10% over the next five years
  • These consensus numbers result in 10 strong buy, 16 buy and eight hold recommendations with UBS having not changed the sell recommendation it has held since October 2009 (by the way -- since UBS gave that sell signal the stock is up 22%)
  • Analysts think the total annual return on this stock will be in the 15%-17% range over the next five years
  • The balance sheet rates an A
  • TheStreet staff give the stock an A+
  • The P/E ratio is 11.20 compared to the market P/E of 15.10
  • The 2.6% dividend is about 25% of projected earnings and slightly above the market dividend rate of 2.30
  • Short interest is declining off the high that was made around the middle of June
  • The bank is improving on those negatives banks are measure by: Net Charge-offs are decreasing, Loan Losses are decreasing and the inventory of Non-Performing Assets is coming down.

Investor interest:
  • As stated above, there is only one major brokerage firm with a sell signal, all other are hold or better
  • 4,810 individual investors who are readers of Motley Fool have given a 90% confidence that the stock will beat the market
  • Firms with positive recommendations are FBR Capital, Goldman Sachs and Stifel Nicholas
  • Columnists with kind articles are Wayne Rogers, Jim Cramer and Tobin Smith

How has the market treated the stock compared to its competition? In the past year Wells Fargo was up 38%, J.P. Morgan Chase ( JPM) was up 2%, Citigroup ( C) was down 4% and Bank of America ( BAC) was up 4%.

JPMorgan
  • TheStreet staff rating of B-
  • Analysts project revenue to decrease by 2.5% this year but increase by 3.1% next year
  • Earning estimated to increase by 4.9% this year and 11.3% next year

Citigroup
  • TheStreet staff rating of C
  • Analysts' project revenue to decrease by 3.4% this year and increase by 4% next year
  • Earnings estimated to increase by 12.7% this year and 11% next year

Bank of America
  • TheStreet staff rating of C-
  • Revenue projected to decrease by 4% this year and increase by 2% next year
  • Earnings to increase by 5,500% this year and 66.1% next year -- Stats look funny when you're coming off losses

Conclusion: I hope you'll agree that I stuck to Sgt. Friday's advice and presented just the facts. Although Wells Fargo doesn't fully meet my 10/10/10 benchmark, it is close and much closer than any other bank to the hurdle.

The bank continues to improve in the areas we should be concerned about. Revenue and earnings are expected to increase and the ratio of bad loans and under performing assets are decreasing.

If you have to own a bank, then this is the one. A look at the moving averages and turtle channels signal to me that the market thinks the worst is over:

In addition to the disclosure at the beginning of the article, before his retirement the author was an officer of both Wells Fargo and Bank of America. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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