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Why Wells Fargo Stock Could Buck Today's Downward Trend

If you've followed Warren Buffett's lead by investing in Wells Fargo (NYSE: WFC  ) , feel free to pat yourself on the back. Roughly halfway through today's trading session, it's one of the few big bank stocks that's spent much of the day in the green (though they've since dipped back into negative territory). While the entire market began the day down, thanks in large part to the woeful performance of Japanese stocks, shares of Wells Fargo subsequently rebounded and by late morning were positive.

The impetus for the rebound can likely be summed up in one word: housing.

As you can see in the chart above, data released this morning by the Commerce Department showed that single-family home sales increased by an impressive 29% in April over the same month in 2012. Absent an unusual spike earlier this year, the seasonally adjusted annualized figure of 454,000 units is the best showing since the middle of 2008.

To top things off, moreover, the median sales price of homes advanced as well. In April 2012, it was $236,400. Last month, it was $271,600. That equates to an increase of 15%.

Why the rapid ascent? The most likely explanation has to do with supply. At present, there are an estimated 156,000 new homes for sale. That's enough for just over four months' worth of demand. At the beginning of last year, by comparison, the monthly supply of new homes for sale was sufficient to satisfy five months' worth of demand. Thus, as you likely learned in your introductory to economics course, a lower supply relative to demand almost invariably pushes up the price.

While there's no question that these upbeat figures are good for the financial sector as a whole, they're particularly good for Wells Fargo. The reason is that it's by far the largest mortgage originator in the country. In the first quarter, for example, the California-based bank underwrote a staggering $109 billion in residential mortgages. The runner-up, JPMorgan Chase, came in at less than half that figure, or $53 billion.

Does this mean it's time to buy Wells Fargo?
Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is 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, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.

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9/28/2016 4:01 PM
WFC $45.31 Up +0.22 +0.49%
Wells Fargo CAPS Rating: ****