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Here's Why Wells Fargo Could Still Be a Smart Investment

By Matthew Frankel, CFP® - Apr 11, 2021 at 7:36AM

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It's been a great performer so far in 2021, but there could be lots of upside still to come.

Wells Fargo (WFC -1.92%) has been one of the best-performing stocks in the financial sector so far in 2021. However, there could be some catalysts still to come that could send it soaring even higher. In this Fool Live video clip, recorded on March 29, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why this big bank could still be a smart investment now.

Matt Frankel: If you remember, Wells Fargo cut their dividend because they weren't allowed to pay the full one. Banks have been paying dividends, no banks have been buying back stock. That's really the big X-factor there.

Jason Moser: Yes. That's important too because I think for most people, for most investors, you would invest in banks, that would be really the crux of the thesis. These aren't your new fangled tech companies that are going to be growing by leaps and bounds. You really are part of -- the thesis is the dividends, the income, and the share repurchases returning value over longer periods of time. I mean, to that point on Wells Fargo because listeners will remember, Wells Fargo is the financial stock that you picked for 2021. Remember, we had our show at the beginning of the year and Wells Fargo was your financial stock to watch for 2021. Partly because they had been coming from such a dark place, I guess the best way to put it. It's really been going through a lot of trouble there recently and it seemed like shares were reflective of that. It's been a decent year for Wells Fargo so far, shares up about 28%, outpacing the market nicely. It feels like there could be plenty of room for Wells to run here for the rest of the year, particularly given this news.

Frankel: Yeah. If you think it's been good so far, wait until they were approved to buyback, say 10% of their shares over the next year or to bring their dividend back. Even their CEO said it's going to take a little while for the dividend to get back to normal levels or to pre-pandemic levels. But there's no reason they won't be approved to spend a few billion on share buybacks.

Moser: I can imagine

Frankel: The stock's still trading at a pretty big discount to book value. They're buying their assets back very cheaply, when they're using share buybacks. I think there's a lot of room for value creation just in the buybacks and dividends, not necessarily growth of the business. That's a bonus if Wells Fargo is eventually allowed to grow. Remember that Federal Reserve penalty that says they can't grow is still in place.

Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Jason Moser has no position in any of the stocks mentioned. Matthew Frankel, CFP owns shares of Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Wells Fargo & Company Stock Quote
Wells Fargo & Company
$45.26 (-1.92%) $0.89

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