Wells Fargo and TD Bank Can Save Your Portfolio in the Coming Correction

With the experts calling for a correction, now may be the time to start thinking defensively while setting yourself up for long-term growth at the same time.

Apr 18, 2014 at 7:00AM

Does your portfolio jump or fall violently with every little news item? If it does, you might need to adjust your holdings to make sure you can comfortably ride out anything the market throws at you, especially with all of the "correction" talk in the news lately. Over the long term, you're better off with low-volatility companies that offer consistent growth and income. A couple of great examples in the financial sector are Toronto-Dominion Bank (NYSE:TD) and Wells Fargo (NYSE:WFC), so let's see why they belong in your portfolio.

What is volatility anyway?
Volatility is a measure of how much a stock tends to move over a given time period, and is a pretty good way of quantifying the risks involved in a stock. In other words, riskier companies have the potential for big price swings, hence higher volatility. The less volatile a stock is, the less it reacts to market news and other economic conditions because they are less likely to have a detrimental effect to the company's business.

This matters to us, especially with a possible correction approaching, because during big market drops, high-volatility stocks tend to get crushed, while stocks with low volatility tend to ride out the storm much better. Take a look at Wells Fargo and Toronto-Dominion (TD) Bank and how they perform during tough times.

The best bank in the United States
Wells Fargo is an exceptional bank for a few reasons. First, the quality of its assets is excellent, and this is evidenced by the bank's performance during the financial crisis. This quality allowed it to make savvy moves like its acquisition of Wachovia at a steep discount, doubling its size. In fact, Wells Fargo was the only U.S. bank still holding an AAA rating from S&P in 2007.


The company is also one of the most ambitious banks in the world in terms of growth, both of its current businesses and through expanding its reach through acquisitions. For instance, Wells Fargo's investment banking division was virtually nonexistent before it acquired Wachovia, but since the acquisition Wells has grown its investment banking market share from 4.1% to 5.7%, making it the 8th largest investment bank in the U.S.

As a result of its asset quality and ambitious strategies, the bank is one of the few in the market to continue to grow its dividend in spite of the crisis. In fact, Wells now pays out a higher dividend than they ever did before the crisis. How many other banks can make this claim?

Rock-solid banking from north of the border
Toronto-Dominion Bank, or TD Bank, is based in Canada, but does have a very significant U.S. presence. Like Wells Fargo, it has grown tremendously as a result of acquisitions and excellent management, and the bank's assets have nearly quadrupled in the past 10 years.

Td Logo

TD is known as the "most convenient bank", with some of the longest operating hours in the industry. It is not unusual for TD Bank branches to be open on Saturdays and Sundays, and drive-thru services are offered until midnight in many locations.

As far as performance during tough times goes, consider how unlike virtually every U.S. financial institution, TD Bank never cut its dividend as a result of the crisis, but raised it every single year. In fact, TD's dividend has more than doubled since 2006, from $0.80 per year to $1.88.

TD Dividend Chart

Watch the news!
Pay attention to these and other banks over the next few weeks, especially if the market stays strong. Stocks overreact to news stories, and this is especially true during earnings season! If your patient and keep an eye out, you might be able to scoop up shares of two of the most solid banks in the world at a discount.

Is this an even better bank to buy?
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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