Bet on a Big-Bank Blastoff With Wells Fargo Stock
Investors would be hard-pressed to find a safer bet right now than the Wells Fargo (NYSE:WFC) stock. Not only is the bank a giant, well-capitalized lender, it’s not deeply immersed in the shaky housing market. Besides, as smaller banks fail, Wells Fargo will be more than happy to scoop up the nervous banking customers.
Some financial institutions, like SVB Financial Group (OTCMKTS:SIVBQ) subsidiary Silicon Valley Bank and Signature Bank (OTCMKTS:SBNY), quickly imploded last month. The ripple effects throughout the U.S. banking sector were alarming as contagion risk dominated the headlines.
Let’s not jump to conclusions, though. There’s no need to lump Wells Fargo into the same category as Silicon Valley Bank and Signature Bank. If anything, the crisis has only made Wells Fargo stronger and more attractive to legions of risk-averse customers and investors.
Wells Fargo Exited the Housing Market
Before we delve into the nasty banking crisis of 2023, there’s a development that some WFC stock traders ignored, but shouldn’t. As a “response to significant decreases in mortgage volume in the broader market environment,” Wells Fargo announced a “new strategic direction” that de-emphasizes mortgage lending.
The company slashed hundreds of roles in its mortgage unit, but there’s more to the story than a headcount reduction. Really, it’s a major shift in Wells Fargo’s business model as the company exits the American housing market.
Reportedly, Wells Fargo seeks to lean more toward investment banking and credit cards as revenue sources. It’s a smart move, I believe, as Wells Fargo has no reason to remain exposed to a housing market that could quickly roll over in 2023 due to rising interest rates.
The Banking Crisis Can Actually Help WFC
All banks will be impacted by the crisis, but some will be affected less than others. Wells Fargo, for example, has much greater liquidity (i.e., cash or access to cash) levels than Silicon Valley Bank and Signature Bank ever did.
Even if a worst-case scenario occurred (bank runs, lenders having to cover large-scale deposits), Morningstar strategist Eric Compton evidently feels that Wells Fargo is well-positioned to survive. In particular, Compton “views Wells Fargo as having a below-average liquidity risk.”
Moreover, some customers are likely to move their capital to banking giants like Wells Fargo during a worst-case scenario, or even a not-so-bad scenario. As State Street Global Advisors analyst/strategist Michael Arone put it, “[T]here is this perceived safety of moving up in terms of those larger banks and deposits to those larger banks.”
What You Can Do Now
So now, you have a choice to make. You can hide out in an all-cash position due to fear of an all-out banking crisis. Or, you can hold some shares of Wells Fargo, knowing that the company is very likely to survive and thrive.
While you’re at it, you can collect a generous 3.06% annual dividend yield from Wells Fargo. This is significantly higher than the sector average yield of 2.114%.
That’s yet another reason to strongly consider buying at least a few shares of WFC stock right now. Sure, the banking sector’s woes are in the financial headlines now. However, with reduced housing market exposure and ample liquidity, Wells Fargo is poised to deliver excellent value to its shareholders.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
