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Why Wells Fargo Stock is a Buffett Favorite
Many financial institutions are still dealing with the lingering effects of the 2008 financial crisis that left their reputations soiled and have kept scores of market participants at arm's length.
Now, day after day, these banks are still saddled with troubles as they struggle with Eurozone exposure, uncertain global markets, mounting regulatory measures , and the newest scandal -- the Libor manipulation probe.
But there is one big bank that appears to be a bright spot in this otherwise dreary sector: Wells Fargo (NYSE: WFC).
"I like Wells Fargo better than anything by far. We have been buying Wells Fargo month after month for a lot of years. Among the big banks, I think it is the best," financial wizard and Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) CEO Warren Buffett told Bloomberg TV in a recent interview.
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Wells Fargo Stock Gets Lift From Earnings
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The company reported earnings of $4.6 billion or $0.82 per share. This slightly beat analysts' expectations for earnings of $0.81 per share.
Wells Fargo posted a 17% rise in its profits from $0.70 a year ago, marking the fourth consecutive quarter in which the company has posted rising profits.
Unfortunately for Wells, the earnings report comes at a bad time.
A discriminatory lending scandal was reported yesterday and that is keeping Wells Fargo stock from experiencing better gains than rival JPMorgan Chase (NYSE: JPM) today. The scandal involved Wells discriminating against African-American and Hispanic families who were forced into costlier subprime loans than comparable white families.
"If you were African-American or Latino, you were more likely to be placed in a subprime loan or pay more for your mortgage loan, even though you were qualified and deserved better treatment," Assistant Attorney General Thomas Perez said in prepared remarks Thursday.
Wells Fargo denied the matter and will settle the issue to avoid contested litigation. The San Francisco-based company will pay a total of $175 million: $125 million in compensation to victims of discrimination and $50 million in down-payment assistance to borrowers in affected communities.
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Wells Fargo Stock: On Verge of Earnings Boost?
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Wells Fargo is expected to announce earnings of 81 cents per share on revenue of $21.32 billion.
A good sign is that analysts' earnings per share projections have increased over the last three months from 80 cents, compared to the abundance of companies lowering guidance.
If Wells is able to post a rise in its profits it will be the fourth consecutive quarter in which the bank has posted a profit increase. It should be able to as those expected quarterly profits are almost 16% higher than a year ago and Wells Fargo is starting to stand out more and more in the recently revived financial sector.
From Barclay's (NYSE ADR: BCS) Libor manipulation scandal, to JPMorgan's (NYSE: JPM) "bet" gone wrong and even back to Morgan Stanley's (NSYE: MS) botching of the Facebook IPO, banks have been in the news for all the wrong reasons lately.
But Wells has avoided a lot of the negative news on banks. It's known for playing it safe compared to its Wall Street rivals.
In fact, Jefferies analyst Ken Usdin called Wells "one of the strongest, most respected U.S. banks" when he initiated coverage of the bank Monday with a "Buy" rating.
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