Another Investing Lesson From the Big Four

Birds of a feather flock together. And that adage was on display today as the Big Four banks struggled to maintain their altitude. But by the end of trading, one stood out among the flock and closed in positive territory -- Wells Fargo (NYSE: WFC  ) . Warren Buffett's favorite stock was light on news today, but still felt the sting of an uncertain market's attitude toward the banks. Though it spent the majority of the day in the red, Wells broke through the loss to a modest 0.44% gain by closing.

Going with the crowd
There were a few sound bites that took bank stocks down today, first being continued drops in the Japanese and other Asian markets. As we learned in the past weeks, Asian market weakness is a concern for bank investors. With Citigroup (NYSE: C  ) generating nearly 20% of its revenue in Asian operations, it is more exposed to the slowing economies of that market than any other bank. Both Bank of America (NYSE: BAC  ) and JPMorgan (NYSE: JPM  ) have Asian segments as well, but their total revenue is only reliant on that area for 4% and 6%, respectively.

Even though the Japanese Nikkei index lost another 3%+ in trading, Wells Fargo investors shouldn't lump it in with the remainder of the Big Four. With a more traditional approach to banking, Wells has little international exposure.

Legal worries
Today was a big day for B of A shareholders, as they wait to hear what a court will decide on a pending settlement with investors. The uncertainty that the bank's legal issues generates can spread to its compatriots, which may have happened today. Down 3.3% before noon, Bank of America may have soured the market for banks, though it recovered to within a single percentage loss for the day.

Wells Fargo is paired with BAC in a legal dispute surrounding last year's $25 billion mortgage settlement. Since there is uncertainty revolving around one BAC case, it makes sense that investors might feel shaky about all of them. And since Wells Fargo may be in the same (albeit smaller) boat as B of A, it lends to a down day for both.

Moving on
Obviously since Wells ended the say in the green, investors have no reason to worry. And if you focus on WFC-centric information, there's more to be happy about.

With the rebound of the housing market plugging along in a slow but steady pace, mortgage lending will be up as more homebuyers return to the market. Since Wells is the biggest mortgage originator of the Big Four, it has the most to gain from the recovery. Home prices have been steadily increasing, too, which will prop up loan balances and increase revenue. Though some are concerned about another housing bubble with the steep rise in housing prices, Wells Fargo CFO Tim Sloan doesn't believe that there's reason to worry. Since credit standards are still high and sub-prime lending is rare in this market, the possibility of a bubble is very small, according to Sloan.

Step out from the herd
Though Wells Fargo's share-price movements may have stuck with the herd for the most part today, that doesn't mean you have to, too. As a Foolish, long-term investor, you know that the fundamentals of Wells Fargo are strong and the current legal woes of another bank do not necessarily bode ill for it. Today's lesson shows that though other banks and their investors can influence how your stock performs on any given day, you don't have to fall for the hype. Stick with your initial investment thesis and you'll avoid unnecessary losses.

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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