There’s plenty to love about Wells Fargo. It’s Berkshire Hathaway’s number one holding. They are one of the most stable banks all across the world, and year-to-date, the stock price is up 30%.
Although, based on the comments of a number of investors and a recent article titled “Is It Finally Time to Buy Bank of America” Wells Fargo looks to be a more expensive stock when compared to Citigroup and Bank of America.
When comparing the numbers, the Wells Fargo stock looks relatively expensive. But you shouldn’t ignore one of Buffett’s most important lessons: “It’s far better to buy a wonderful company at a fair price, then a fair company at a wonderful price.”
Here are the nine reasons why this bank is worthy of your investment.
1. “To satisfy all of our customers’ financial needs and help them succeed financially.” – John Stumpf, CEO of Wells Fargo.
As the Wells Fargo CEO would say, the company’s culture consists of putting the customer first, and it’s a uniting force within the company itself. Investors often overlook things like company culture and mantras, and that’s a big mistake.
A business like this consists of thousands of people coming together in order to perform a task. The best companies will use their vision to build leadership and communities, and they are the ones worthy of investing in.
2. Wells Fargo management is battle tested.
Wells Fargo has a tremendous amount of experience at the top of the company, and it shows because the bank got through the financial crisis relatively unscathed. This company has one of the best CEOs in the industry, and he has over 28 years of service with Wells Fargo.
3. One out of three United States households is banking with Wells Fargo.
In total, Wells Fargo has 70 million customers.
When it comes to banking, savings and checking accounts are just the tip of the iceberg of the relationship. The relationship is further nurtured by cross-selling products. According to Stumpf, Wells Fargo is the best when it comes to cross-selling their customers. This provides the bank with a large advantage competitively.
4. The Wachovia merger was a tremendous game changer.
Due specifically to this merger, Wells Fargo is now the third largest retail bank in the United States. But that’s not all, because it’s the number one bank in auto lending, mortgages and small business loans. The investment bank is now stronger due to the merger, and it also helped increase savings and checking deposits by $271 billion.
5. Wells Fargo EPS has grown for 15 consecutive quarters.
Wells Fargo is the strongest bank in the United States because of consistent and steady growth. If you want to sleep at night – and who doesn’t – then Wells Fargo is an awesome choice.
6. Wells Fargo has raised its dividend by 500% since 2010.
When the Federal Reserve reviews banks, it does so by using the Comprehensive Capital Analysis and Review (CCAR). This specific test shows if the bank has enough money to survive under stressful conditions.
Banks also have the ability to raise dividends when this test is underway. The better the capital situation of a bank, the more likely its raising dividend request approval will happen. Since the dividend has gone up by 500% since 2010, it’s obvious that Wells Fargo is excelling in this area and passing the test with flying colors.
7. “We have a lot of our liquidity sitting on the sideline.”
By the bank holding on to equity, it gives companies the ability to take advantage of opportunities as they come up. This is also true for banks, so it’s great that Wells Fargo has its liquidity sitting on the sideline to use to take advantage of excellent opportunities as they arise.
As the economy recovers, we will likely see more renters beginning to buy homes and businesses becoming more aggressive. When this happens, there will be a greater demand for loans. By Wells Fargo having an excess in liquidity, they have the ability to make those loans when other banks can’t.
8. Wells Fargo has less than 5% of its $1 trillion deposit portfolio in CDs.
When making a comparison against other deposit types, CDs have the largest interest rate. It’s important to note because the greater the interest rates on deposits, the less the bank has available to return on loans.
Wells Fargo has a 3.4% net interest margin. This number measures the bank’s return in conjunction with interest expenses. They beat Citigroup and Bank of America handily, who have net interest margins of 2.5% and 2.8% respectively.
9. When it comes to efficiency, Wells Fargo is the best in class.
According to the CEO, “While over 80% of our customer interactions are self-service, most customers open their first account and establish their banking relationship by visiting one of our many stores.”
How does a company in this position become even more efficient?
Wells Fargo is in the early testing stages of opening 1000 square-foot neighborhood stores. Strumpf tells us that they are 1/5 the size of the traditional stores and have been much more efficient and very effective. This could be a home run if the neighborhood stores turn out to be as effective as the CEO suggests.