In February 2021, we wrote that Wells Fargo (WFC) was an attractive investment opportunity and that the stock could rise 50% or more. Then, two months ago, when Wells Fargo was nearing $60/share, following a 75% gain in 11 months, we said “we believe the exceptional value opportunity in Wells Fargo we highlighted has been realized.”

Since then, Wells Fargo and most other large financials including JP Morgan (JPM) and Bank of America (BAC) have been in correction mode as investors weigh the risk of an economic recession. Wells Fargo is now trading back in the mid-$40s, an area that we think makes the stock attractive for purchase. If Wells Fargo were to rise from the current level of $46 back to the $60 level in the next year or two, that would be a gain of 30%.

Let’s review why we think Wells Fargo shares are attractive for purchase in the low-to-mid $40s price range:

• WFC trades at a forward P/E of 9, or slightly lower than its peers. The combination of higher earnings per share and a higher multiple are tailwinds to the stock price.

• WFC increased its dividend twice since our original recommendation, and we expect additional dividend payout increases in the future.

• WFC is buying back stock through repurchases at a rapid pace. WFC “repurchased $6 billion of common stock in the first quarter, bringing our total repurchases since the third quarter of 2021 to $18.3 billion”.

CEO Charlie Scharf has done an admirable job executing his turnaround strategy but there is more to do. The Fed’s $2 trillion asset cap, under which Well Fargo still operates, needs to be lifted to encourage growth. Ongoing legal settlements from prior management mistakes require resolution. And, further cost-cutting measures need to be implemented.

Here is the WFC First Quarter 2022 earnings release and the earnings presentation.

During the quarterly conference call CEO Scharf noted “The mortgage origination market experienced one of its largest quarterly declines that I can remember and it will take time for the industry to reduce excess capacity”. We expect Wells Fargo shares to be volatile during this adjustment, as they are one of the largest mortgage operators in the country. We would not be surprised if WFC shares dipped into the low $40s in the coming weeks as investors adjust to higher interest rates. A cooling in the too-hot housing market is beginning to appear in the leading housing market indicators we monitor, though demand remains very healthy.

While good progress has been made at Wells Fargo, we see more growth ahead if management stays the course and continues to execute its turnaround plan. If all goes well, patient shareholders are likely to be rewarded over time. We think WFC shares are attractive for purchase in the low-to-mid $40s.