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Is Wells Fargo Stock A Good Buy BETTER

Wells Fargo (WFC -1.55%) has outperformed all of the major banks this year, with its stock price down only about 4% year to date. In comparison, its major competitors have all posted double-digit drops this year. Its valuation has also come way down with a forward price-to-earnings (P/E) ratio of 9, and a minuscule five-year P/E-to-growth (PEG) ratio of 0.19. Both are indicators of an undervalued stock.

is wells fargo stock a good buy


With its solid revenue gains in the most recent quarter and improving credit quality, it has been a nice safe haven for investors in this market. While it looks attractive and appears to be a solid buy, there is one major reason why I would look elsewhere if I were to add a bank stock to my portfolio right now.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

I downgrade my investment rating for Wells Fargo & Company's (NYSE:WFC) shares from a Buy to a Hold. In my article published almost a year ago on April 28, 2021, I compared WFC against Bank of America Corporation (NYSE:BAC) and determined that Wells Fargo was the more attractive stock of the two based on outlook and valuations.

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Wells Fargo (WFC) is one of the world's biggest banks. It's been dogged by regulatory issues, and the coronavirus crisis delivered another blow, sending Wells Fargo stock sharply lower.

But with the firm snapping a negative earnings streak, and showing progress toward eventually ending Fed limits on its size, is WFC stock a buy right now? Here is what fundamental and technical analysis says.

Wells Fargo stock was given a boost after it was reported that Federal Reserve officials "privately signaled" that they accept Wells Fargo's proposal to repair its risk management and governance practices.

Wells Fargo stock shed 44% of its value in 2020. This is despite the fact it went on a strong run from early November through to the end of the year. At one point it had plunged to its worst levels in 11 years after a downtrend hit the stock in early June. It sank even lower than its coronavirus crash lows.

The relative strength line for Wells Fargo stock has generally been spiking since November, though it has levelled off of late. It had previously sunk to levels not seen since 1990. The RS line still has a fair way to go before it reaches the where it started 2020. WFC stock has been underperforming the broader S&P 500 index, especially since the 2008 financial crisis.

MarketSmith analysis shows WFC stock sold off in above-average volume following its weak Q4 report, but then it bounced back. It was then snapped up in massive volume when it posted its strong Q1 earnings.

Big bank stocks generally have trouble outperforming the S&P 500 index over the long run, but Wells Fargo stock has been a notable laggard even among its peers. It is important it maintains its improving performance going forward.

WFC stock currently has a strong, but not ideal, IBD Composite Rating of 82. This puts it in the top 18% of all stocks tracked. It has taken major strides in improving in this key metric in recent months.

The Stock Checkup Tool shows Wells Fargo earnings are lagging its strong stock market performance. Its Relative Strength Rating is currently 87 out of 99. This means WFC is in the top 13% of stocks in terms of stock market performance over the past 12 months.

Big money is showing rising confidence in Wells Fargo stock. It holds an Accumulation/Distribution Rating of B-, which represents moderate buying. In total, 43% of its stock is now held by funds. CAN SLIM investors prefer to back stocks which are heavily backed by big money.

The Style Scores are a complementary set of indicators to use alongside the Zacks Rank. It allows the user to better focus on the stocks that are the best fit for his or her personal trading style.

Within each Score, stocks are graded into five groups: A, B, C, D and F. As you might remember from your school days, an A, is better than a B; a B is better than a C; a C is better than a D; and a D is better than an F.

As an investor, you want to buy stocks with the highest probability of success. That means you want to buy stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Score of an A or a B in your personal trading style.

Zacks' proprietary data indicates that Wells Fargo & Company is currently rated as a Zacks Rank 3 and we are expecting an inline return from the WFC shares relative to the market in the next few months. In addition, Wells Fargo & Company has a VGM Score of C (this is a weighted average of the individual Style Scores which allow you to focus on the stocks that best fit your personal trading style). Valuation metrics show that Wells Fargo & Company may be undervalued. Its Value Score of A indicates it would be a good pick for value investors. The financial health and growth prospects of WFC, demonstrate its potential to outperform the market. It currently has a Growth Score of C. Recent price changes and earnings estimate revisions indicate this would not be a good stock for momentum investors with a Momentum Score of F.

The ever popular one-page Snapshot reports are generated for virtually every single Zacks Ranked stock. It's packed with all of the company's key stats and salient decision making information. Including the Zacks Rank, Zacks Industry Rank, Style Scores, the Price, Consensus & Surprise chart, graphical estimate analysis and how a stocks stacks up to its peers.

The detailed multi-page Analyst report does an even deeper dive on the company's vital statistics. In addition to all of the proprietary analysis in the Snapshot, the report also visually displays the four components of the Zacks Rank (Agreement, Magnitude, Upside and Surprise); provides a comprehensive overview of the company business drivers, complete with earnings and sales charts; a recap of their last earnings report; and a bulleted list of reasons to buy or sell the stock. It also includes an industry comparison table to see how your stock compares to its expanded industry, and the S&P 500.

The Value Scorecard identifies the stocks most likely to outperform based on its valuation metrics. This list of both classic and unconventional valuation items helps separate which stocks are overvalued, rightly lowly valued, and temporarily undervalued which are poised to move higher.

The Momentum Scorecard focuses on price and earnings momentum and indicates when the timing is right to enter a stock. The analyzed items go beyond simple trend analysis. The tested combination of price performance, and earnings momentum (both actual and estimate revisions), creates a powerful timeliness indicator to help you identify stocks on the move so you know when to get in and when to get out.

The X Industry (aka Expanded Industry) is a subset of the M (Medium Sized) Industry, which is a subset of the larger Sector category, which is used to classify all of the stocks in the Zacks Universe. The Zacks database contains over 10,000 stocks. All of those stocks are classified into three groups: Sector, M Industry and X Industry. There are 17 Sectors, 60 different M Industries, and 265 X Industries.

For example, a regional bank would be classified in the Finance Sector. Within the Finance Sector, it would fall into the M Industry of Banks & Thrifts. And within the M Industry, it might further be delineated into the X Industry group called Banks Northeast. This allows the investor to be as broad or as specific as they want to be when selecting stocks.

The X Industry values displayed in this column are the median values for all of the stocks within their respective industry. When evaluating a stock, it can be useful to compare it to its industry as a point of reference. Moreover, when comparing stocks in different industries, it can become even more important to look at the relative measures, since different stocks in different industries have different values that are considered normal.

Like the earnings yield, which shows the anticipated yield (or return) on a stock based on the earnings and the price paid, the cash yield does the same, but with cash being the numerator instead of earnings. For example, a cash/price ratio, or cash yield, of .08 suggests an 8% return or 8 cents for every $1 of investment.

Enterprise Value / Earnings Before Interest, Taxes, Depreciation and Amortization is a valuation metric used to measure a company's value and is helpful in comparing one stock to another.

Conventional wisdom says that a PEG ratio of 1 or less is considered good (at par or undervalued to its growth rate). A value greater than 1, in general, is not as good (overvalued to its growth rate). For example, a company with a P/E ratio of 25 and a growth rate of 20% would have a PEG ratio of 1.25 (25 / 20 = 1.25). A company with a P/E ratio of 40 and a growth rate of 50% would have a PEG ratio of 0.80 (40 / 50 = 0.80). Traditionally, investors would look at the stock with the lower P/E and deem it a bargain. But when compared to its growth rate, it does't have the earnings growth to justify its P/E. In this example, the one with the P/E of 40 is the better bargain because it is selling at a discount to its growth rate. So the PEG ratio tells you what you're paying for each unit of earnings growth. 041b061a72


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