Every week on Industry Focus: Financials, host Jason Moser and Motley Fool contributor Matt Frankel, CFP discuss one stock that's on top of their respective watch lists. After the recent volatility and financial sector underperformance, both have their eyes on big banks. Here's why Frankel thinks Bank of America (BAC -0.12%) is worth a look and why Moser says Wells Fargo (WFC -0.50%) could be a good value right now.
A full transcript follows the video.
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This video was recorded on Dec. 10, 2018.
Jason Moser: Alright, Matt, let's wrap this week up here with One to Watch. What stock has piqued your interest for this coming week?
Matt Frankel: It's really tough to pick just one bank stock because they've been beaten down so much. I wish I could own them all. I've recommended an ETF that owns them all before. One in particular I'm curious about right now is Bank of America, ticker BAC. It's the bank stock I've owned the longest in my portfolio. It's one of my biggest investments. It's been crushed lately, especially with this interest rate saga. Bank of America is one of the more sensitive banks to long-term interest rates. They have a very disproportional level of non-interest-bearing deposits. With those deposits, when they loan them out, whatever interest rate they get is pure profit. If the long end of the curve is overblown and it's downtrend, if the economy is a little better than people seem to give it credit for right now, and if the Fed keeps going with their interest rate hikes, Bank of America could be a pretty big beneficiary. Plus, right now, it's actually trading for just below its book value for the first time since before tax reform pushed its profits higher. So, it's looking like a great bargain right now.
Moser: And what's the ticker for Bank of America?
Frankel: That is BAC.
Moser: Good stuff. I'm taking a page from your book here and going with a bank. I'm going with Wells Fargo this week, ticker WFC. It's not been a good year for Wells Fargo, the stock down 20% -- over 20% now, when you consider today's selling. They continue to try to put a number of scandals behind them. Over the summer, Wells was required to submit a plan to regulators for improving their compliance and operational risk management. Ultimately that plan failed to win Fed approval. Not good. That means they have to go back to the drawing board. They're firing around three dozen district managers in connection with the sales practices that got them in this trouble. They continue to operate under that asset cap that you've mentioned before, meaning they essentially can't grow until they have the permission to do so.
To me, this all boils down to, should Tim Sloan, the CEO of the company, be leading this company going forward? I never really was a big fan of his taking that CEO role. He was the CFO before. He'd been with the company for a while, so a lot of this stuff was happening under his watch already.
With all of that said, Wells Fargo is a huge bank with a tremendous presence in our mortgage market. It's not a bank that can just disappear. Everybody has to determine their own line, but I can't help but wonder if maybe there isn't an opportunity brewing here for folks looking to get that exposure to Wells Fargo. Generally speaking, it still has a lot going for it, snafus aside. Worth keeping our eyes on in the coming weeks, to see if they can't get their house in order.