Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Wells Fargo Running Into a Buzz Saw?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

With more than 5,400 stocks to choose from, the universe of investment possibilities is enormous. You could get tips over the company water cooler or from Internet discussion boards. A better way might be to look for stocks based on what you already know and own.

Motley Fool CAPS helps you focus your energies by providing you with a personalized Stock of the Day. Using its supercomputer, it looks at stocks currently in your active pick list, stocks picked by highly rated players with lists similar to yours, industries in which you currently have active picks, and Saturn's orbit around the sun. Well, maybe not that last one -- but it targets areas in which you already have an interest.

By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.

Based on my outperform ratings on banks such as Hudson City Bancorp, Northern Trust, and PNC Financial Services (NYSE: PNC  ) , as well as my underperform rating on National Bank of Greece, the CAPS supercomputer thought I also might be interested Wells Fargo (NYSE: WFC  ) , one of five Stocks of the Day it offered up for my consideration this week.

Let's see what the money center has going for it that might warrant an investment, even if it hasn't yet picked it for you. Just remember, as smart as the CAPS algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions.

Wells Fargo snapshot

Industry Commercial Bank
Market Cap $179.1 billion
Revenues, TTM $73.0 billion
Return on Capital, TTM NA
Dividend & Yield $0.88, 2.6%
Cash $332.7 billion
Long-Term Debt $115.0 billion
Recent Price $33.94
CAPS Rating (out of 5) ****

Sources: Motley Fool CAPS; S&P Capital IQ.

Buy what you know
Banks are apparently doing more with less these days. From Wells Fargo to Citigroup (NYSE: C  ) , we're seeing lower revenues turn into higher profits, though JPMorgan Chase (NYSE: JPM  ) showed less interest income and net income in the fourth quarter. For the full year, it was the same story as its peers. PNC, for its part, failed for both periods (though ignoring the gain from discontinued operations last year, it eked out a gain year on year).

Despite Wells' total interest income falling almost $600 million, or 4.6% in the fourth quarter, it was able to reduce its provisions for credit losses by nearly $1 billion so that net interest income after provisions was up almost $800 million year over year. Along with some ephemeral non-interest operating expenses, it was able to reduce by about $600 million and -- voila! -- Wells produced $690 million more in net income in the fourth quarter than the previous year and $1.5 billion more for the year.

Citgroup also saw revenues drop 4.8% in the fourth quarter, but it was down sharply for the year at 11% to $48 billion. But unlike Wells, Citi's operating expenses soared 6% in the quarter and 7.5% for the year. Yet it also was able to cut its loss provisions 43% in the fourth, though not enough to help profits, which fell 26% year over year. Now Citi's profits were up in 2011 to $11 billion, though no doubt they were helped along by cutting its loan loss provisions by more than half.

You can bank on it
This is one of Warren Buffet's largest stock holdings, and there's a reason he's upped his stake in the bank over time. As the recent stress tests showed, its Tier 1 common capital ratings soared over the past two years to more than 6% in a stressed scenario, meaning it's on very firm financial footing. Citi, on the other hand, failed to gain approval for its capital plan, as did Ally Financial, SunTrust, and MetLife. They won't be able to raise their dividends or buy back shares without raising more capital.

It explains why Wells is a less risky venture and underscores the conservative nature of its management team. It also explains why Wells trades at twice the book value that Citi does.

Highly rated CAPS All-Star huddaman thinks that while Wells Fargo carries some risk as a result of the mortgages it issues, it is one of those financial companies that can better handle the outcomes.

i feel it's very easy for a financial stock to own toxic that goes unnoticed. however, with wells fargo's great brand and distance from walls street, i think i have greater confidence here. however, they do write a lot of mortgages, so the risks exist!

All's well that ends well
At 12 times trailing earnings and just 9 times estimates, it's similarly valued to Bank of America (NYSE: BAC  ) and carries only a slight premium to its other rivals on a forward earnings basis, but as one of the better-run financial institutions, it could be argued it deserves an even higher premium than that. So I've gone and marked it to outperform on CAPS, but add it to your Watchlist and let me know on the Wells Fargo CAPS page or in the comments section below whether you think like Buffett that it's an investment you can take to the bank.

Even if Wells Fargo doesn't pique your interest, there's one small bank that's flying under the market's radar. It has some of the best operational numbers you'll ever see. The Motley Fool featured it in its brand-new free report: "The Stocks Only the Smartest Investors Are Buying." We invite you to download a free copy. Find out the name of the bank Warren Buffett would probably be interested in if he could still invest in small banks.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Bank of America, Wells Fargo, Citigroup, PNC Financial Services Group, and JPMorgan Chase and has created a covered strangle position in Wells Fargo. Motley Fool newsletter serviceshave recommended buying shares of Wells Fargo. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1852143, ~/Articles/ArticleHandler.aspx, 10/20/2016 5:45:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,162.35 -40.27 -0.22%
S&P 500 2,141.34 -2.95 -0.14%
NASD 5,241.83 -4.58 -0.09%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/20/2016 4:01 PM
WFC $44.93 Down -0.33 -0.73%
Wells Fargo CAPS Rating: ****
BAC $16.56 Up +0.09 +0.55%
Bank of America CAPS Rating: ****
C $49.58 Up +0.10 +0.20%
Citigroup CAPS Rating: ***
JPM $68.26 Down -0.09 -0.13%
JPMorgan Chase CAPS Rating: ****
PNC $93.30 Up +1.70 +1.86%
PNC Financial Serv… CAPS Rating: ****