When I look for investment opportunities, there’s a lot from which to choose. Electric vehicles, 5G technology and e-commerce are all solid plays these days. Those sectors are performing much better, and have so much more promise, than big bank stocks such as Wells Fargo (NYSE:WFC) stock.
Despite that, some analysts are even sending some bullish signals these days.
- Wolfe Research gave WFC an upgrade, calling it a compelling risk/reward stock.
- UBS upgraded the stock from sell to neutral.
With all due respect to my fellow stock market experts, I don’t see it. But then again, I have a unique perspective when it comes to big bank stocks such as Wells Fargo, and that’s one of the reasons why I tend to view WFC stock with skepticism.
The Insider’s View
Remember, I used to work as a banking analyst for the Federal Reserve. So, I’ve got an insider’s viewpoint about the industry, and I know all too well about the reporting practices of big banks.
I also know the dirt surrounding banking scandals, such as the ones that Wells Fargo put itself in over the years.
You remember what I’m talking about – the Wells Fargo accounting scandal that came to light in 2016, when it was revealed that bank employees were being pressured to hit aggressive sales goals, and created millions of fake accounts in their customers’ names, without their knowledge or consent.
Few things are as personal to people as their money, and it’s a big decision to pick what company is trustworthy enough to do business with. Wells Fargo abused that trust, and it really has never recovered.
And even now, Wells Fargo really hasn’t done a lot of make things better. Remember earlier this year, as the novel coronavirus pandemic began taking hold of the nation’s economy? Wells Fargo customers in at least 14 states lodged complaints that the bank put their accounts into forbearance plans without their knowledge or permission.
Wells Fargo says the errors were “in the spirit of providing assistance” to people during the pandemic, but the entire episode struck a nerve in the public because it brought back memories of the 2016 banking scandal.
That kind of reaction is what happens when you abuse your customers’ trust.
WFC Stock, Today and Tomorrow
So, there are a lot of reasons to be skeptical of Wells Fargo. And when you look at today’s economy, there aren’t a lot of reasons to jump into a big bank stock like WFC today.
Bank stocks’ profits are somewhat contingent on interest rates. The higher the interest rate, the more profit there is for financial institutions because they can charge more to lend money.
With near-zero rates, as we have currently, bank stocks are seeing reduced profits. And the Federal Reserve is in no hurry to raise interest rates soon; it suggests that it doesn’t see a rate hike until 2023. It’s encouraging Congress to approve additional stimulus programs to help the U.S. through what it sees as a long economic slowdown, thanks to the Covid-19 pandemic.
Because of that slowdown, the Fed recently extended limits on bank dividends and stock buybacks through the fourth quarter, citing continued economic problems from the coronavirus. The limits on dividends and buybacks for banks with more than $100 billion in total assets are intended to protect bank capital and provide a cushion against loan losses.
The nation’s biggest banks are expected to report third-quarter earnings as early as next week. Analysts are expecting Wells Fargo to report earnings of 42 cents per share, which would be down by more than half from the same quarter a year ago. WFC stock is already down 55% so far this year – I’m not expecting a rebound any time soon.
The Bottom Line
Even if you liked financial stocks – and I don’t – there’s no good reason to jump into WFC stock right now.
The stock price remains depressed, there’s no ability to increase shareholder value through dividends or stock buybacks, and interest rates will remain near zero for at least the next two years.
WFC stock gets a well-deserved “F” grade and a strong sell recommendation from my Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.