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In March 2009, the Wells Fargo stock price was $7.21 a share. That was a great time to buy.
But right now, Wells Fargo & Co. (NYSE: WFC) is trading at close to $55. From its lows near the tail-end of the recession, to the highs reached just this month, the Wells Fargo stock price is up almost 700%.
This monster rise has already seen its best days – even with Wells Fargo earnings today (Tuesday) besting analyst expectations.
The story behind the Wells Fargo stock price delivers an important lesson for big bank investing. There are only very specific instances where big bank stocks are worth an investor's time.
"You catch them on the downside every time there's a huge correction and a financial panic and the banks get hit – that's when you buy them," Money Morning Capital Wave Strategist Shah Gilani said. "They're too big to fail; they're not going to fail. So anytime they get pounded, you buy them and you ride them back up to maybe their old highs or somewhere where you've got nice profits."
But the Wells Fargo stock price is simply not sending out this kind of signal right now.
"Why would you go into a bank, really? There are plenty of other places you can go in the stock market where you can get much better yield and have a safer investment," Gilani said.
With a 700% gain already since 2009, it doesn't have much further to climb.
And it simply isn't an attractive enough income investment to justify buying a stock that will, for the foreseeable future, likely trade in a narrow range at best.
The Wells Fargo dividend yield is 2.58%. That's just about on par with the industry average. But if you're looking for dividends on a stock with no true growth prospects, a cigarette company is a better bet than a big bank. Try Altria Group Inc. (NYSE: MO) with its 4% yield. Or Phillip Morris International Inc. (NYSE: PM) at 5.2%.
Simply put, big bank stocks are not stocks to buy right now.
"I don't see a positive for them," Gilani said. "People are sick of big banks."
And it's not just that there's little room for growth.
We are entering a new era for consumer lending, and that will only put further pressure on the already unimpressive big bank stocks like WFC…
How Rising Interest Rates Will Hurt Well Fargo Stock Price
Low interest rates hurt banks, particularly in their commercial lending segments.
Banks like Wells Fargo will take in deposits, issue bonds, or borrow at low rates from the U.S. Federal Reserve, and pay interest to hold those funds. They will then lend that money out at higher interest rates and pocket the spread. These are Wells Fargo's net interest margins.
When the Fed is putting downward pressure on rates and loan demand falls, this will shrink Wells Fargo's net interest margin and hit their commercial lending income.
In fact, net interest margins for Wells Fargo were 3.1% for 2014. This compares to a historical average of around 4.6% for the company. And it's the lowest their margins have been in 40 years.
So, you would expect that Wells Fargo is eagerly awaiting a Fed rate hike to reverse this collapse.