1 Bank Stock I'm Ready to Buy Right Now

Their team may have lost the Superbowl, but 49ers fans can at least console themselves with the fact that the City by the Bay has a winning bank: Wells Fargo (NYSE: WFC  ) .

The San Francisco-based banking giant is not only as healthy as the proverbial horse right now, but it's also supremely well positioned for growth in the industry that Ben Bernanke is counting on to bring the country back from the economic dead: housing. As such, Wells Fargo is a bank stock I'm ready to buy, and here are three reasons why.

1. Brilliant fourth-quarter earnings
For the quarter, Wells Fargo made a record $5.1 billion in net income, for year-over-year growth of 24%, and corresponding record earnings per share of $0.91. For the year, the bank made $18.9 billion in net income, for year-over-year growth 19%, and corresponding record earnings per share of $3.36.  

In comparison, investor darling Bank of America (NYSE: BAC  ) only managed to make $0.7 billion in net income in the fourth quarter, down from $2 billion the year previous, leaving investors with earnings per share of just $0.03. Meanwhile, fellow superbank Citigroup (NYSE: C  ) showed year-over-year growth as good as Wells Fargo -- 25.1% --  giving investors earnings per share of $0.38. That's a job well done for Citi, but its $2.2 billion in adjusted net income still doesn't hold a candle to Wells' bottom line.

B of A investors can primarily thank a $2.7 billion payout to Fannie Mae for claims over soured mortgages leftover from the financial crisis for the bank's terrible fourth-quarter numbers, a blemish that segues us nicely into reason No. 2 for investing in Wells Fargo.

2. A record of good behavior
None of the big American banks came out of the financial crisis with entirely clean hands, but some did much better than others: Wells Fargo is one of those banks.

In July of last year, the bank agreed to pay $175 million to settle charges from the Department of Justice that brokers originating loans for Wells Fargo charged higher fees and higher interest rates for black and Latino borrowers than it did for white borrowers. And in October, federal prosecutors accused the bank of misrepresenting the quality of loans it originated to the Federal Housing Administration , or FHA, whose job it is to guarantee home loans for lower income and first-time buyers.

Like I said, Wells Fargo isn't perfect, but up against B of A, which just agreed to pay more than $10 billion to Fannie Mae (of which $2.7 billion has already been paid, as referenced above) for troubled mortgages originated during the housing boom (one of several crisis-related payouts over the last year), Wells Fargo is a saint.

And as is easy to see, better behavior is clearly related to better profits: When you're not paying out money to settle fraud charges, there's more for the bottom line.

3. Housing, housing, housing
Housing is on the rebound, and Wells Fargo is well-positioned to capitalize on it. Though the bank made fewer mortgage loans in the fourth quarter than it did in the third, it's still the country's largest home lender. Wells made $125 billion in home loans in Q4, versus $139 billion in Q3.

But with mortgage rates at or near record lows, generally steady if somewhat choppy U.S. economic growth, and Fed Chairman Ben Bernanke snapping up $40 billion of mortgage-backed securities every month (to stimulate mortgage-writing demand), home lending is a good business to be in right now, period. And it's even better to be at the top of the business, like Wells.

Final Foolish thought on Wells
Wells is a clean, mean, mortgage-writing machine. Its dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown, and has helped keep the bank operating at the top of its game.

Wells is truly the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, check out our premium research report from one of The Motley Fool's top banking analysts. For instant access to this in-depth take on Wells Fargo, simply click here now.


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  • Report this Comment On February 14, 2013, at 7:31 AM, rightagain wrote:

    All of BAC's problems can be traced back to the purchase of Countrywide. When you take out the CW factor BAC beats Wells-much more diversity along with more international exposure with BAC.

    I'm all in for BAC-there's more upside.

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