WFC - Wells Fargo

[Ballinvarosig Investors]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

[rb]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

Not no one. I was buying. I recall that Junto and Ericopoly were as well. This is value investing and it's hard. You can use any name you want really. When I was buying AAPL on sale at the end of 2018 almost everyone was running from it. Now everyone they're gushing over it. What changed? Nothing. Just the PR. Simply back then the stock was going down and now the stock is going up.

 

Value investing. Easy in theory. Tough in practice.

[Mephistopheles]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

Not no one. I was buying. I recall that Junto and Ericopoly were as well. This is value investing and it's hard. You can use any name you want really. When I was buying AAPL on sale at the end of 2018 almost everyone was running from it. Now everyone they're gushing over it. What changed? Nothing. Just the PR. Simply back then the stock was going down and now the stock is going up.

 

Value investing. Easy in theory. Tough in practice.

 

+1

 

I made a ton of money on this one over the last year, with a combination of stock and options. I remember some days during last spring and summer it was just dropping like rocks. It was nerve wracking but every time I felt anxious I just looked at the market cap vs. the book value and earnings power. It just didn't make sense.

[CorpRaider]

Hey, having a trillion in free money (plus a bunch of free, obvious options including removal of gov't punishment and maybe a step change improvement in the whole freaking bidness model from use of digital tools) doesn't suck in all possible timelines? 

 

[benchmark]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

Not no one. I was buying. I recall that Junto and Ericopoly were as well. This is value investing and it's hard. You can use any name you want really. When I was buying AAPL on sale at the end of 2018 almost everyone was running from it. Now everyone they're gushing over it. What changed? Nothing. Just the PR. Simply back then the stock was going down and now the stock is going up.

 

Value investing. Easy in theory. Tough in practice.

 

+1

 

I made a ton of money on this one over the last year, with a combination of stock and options. I remember some days during last spring and summer it was just dropping like rocks. It was nerve wracking but every time I felt anxious I just looked at the market cap vs. the book value and earnings power. It just didn't make sense.

 

I have started taking some profits here, especially with options. What about others?

[Junto]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

Not no one. I was buying. I recall that Junto and Ericopoly were as well. This is value investing and it's hard. You can use any name you want really. When I was buying AAPL on sale at the end of 2018 almost everyone was running from it. Now everyone they're gushing over it. What changed? Nothing. Just the PR. Simply back then the stock was going down and now the stock is going up.

 

Value investing. Easy in theory. Tough in practice.

 

+1

 

I made a ton of money on this one over the last year, with a combination of stock and options. I remember some days during last spring and summer it was just dropping like rocks. It was nerve wracking but every time I felt anxious I just looked at the market cap vs. the book value and earnings power. It just didn't make sense.

 

I have started taking some profits here, especially with options. What about others?

 

I did sell my Jan 2022 $37.50 call options I bought last fall today. I previously rolled some to Jan 2023 $50 call options.

 

I was crazy long going into November (tilt is the best way to say it) and adjusted on the run up to overweight. I think there is room to run yet but definitely not the deal it was last fall. $45 is my fair value estimate right now.

[Parsad]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

Not no one. I was buying. I recall that Junto and Ericopoly were as well. This is value investing and it's hard. You can use any name you want really. When I was buying AAPL on sale at the end of 2018 almost everyone was running from it. Now everyone they're gushing over it. What changed? Nothing. Just the PR. Simply back then the stock was going down and now the stock is going up.

 

Value investing. Easy in theory. Tough in practice.

 

+1

 

I made a ton of money on this one over the last year, with a combination of stock and options. I remember some days during last spring and summer it was just dropping like rocks. It was nerve wracking but every time I felt anxious I just looked at the market cap vs. the book value and earnings power. It just didn't make sense.

 

I have started taking some profits here, especially with options. What about others?

 

I did sell my Jan 2022 $37.50 call options I bought last fall today. I previously rolled some to Jan 2023 $50 call options.

 

I was crazy long going into November (tilt is the best way to say it) and adjusted on the run up to overweight. I think there is room to run yet but definitely not the deal it was last fall. $45 is my fair value estimate right now.

 

That's where I have it pegged too...that will add another 100% gain to my current 200% gain on my WFC LEAPs.  Cheers!

[ERICOPOLY]

I started reading this thread again this week for the first time in at least 6 months.  The politics section was a nice distraction to increase my patience and be more of the "bordering on sloth" type of investor..

 

Looking back after a year of WFC, all I will say is that BAC hit $18 almost a year ago and now it's $37. 

 

I'm glad WFC is recovering because I have so much of it via options, but I wish I had played the pandemic differently.  I still have all the WFC that I bought but I view it as a mistake because I would have done better with a different horses.  I have a small basket of Australian big-4 banks including ANZ which is up about 100% since I purchased on 5/1/20.  I just didn't act to the degree I should have.  Oh well.

 

 

 

[Shane]

I started reading this thread again this week for the first time in at least 6 months.  The politics section was a nice distraction to increase my patience and be more of the "bordering on sloth" type of investor..

 

Looking back after a year of WFC, all I will say is that BAC hit $18 almost a year ago and now it's $37. 

 

I'm glad WFC is recovering because I have so much of it via options, but I wish I had played the pandemic differently.  I still have all the WFC that I bought but I view it as a mistake because I would have done better with a different horses.  I have a small basket of Australian big-4 banks including ANZ which is up about 100% since I purchased on 5/1/20.  I just didn't act to the degree I should have.  Oh well.

 

 

Did you continue to buy WFC as it declined into October/November 2020?  I think that WFC still has room to go, much of the potential good news hasn't had an opportunity to show up yet.

[ERICOPOLY]

I started reading this thread again this week for the first time in at least 6 months.  The politics section was a nice distraction to increase my patience and be more of the "bordering on sloth" type of investor..

 

Looking back after a year of WFC, all I will say is that BAC hit $18 almost a year ago and now it's $37. 

 

I'm glad WFC is recovering because I have so much of it via options, but I wish I had played the pandemic differently.  I still have all the WFC that I bought but I view it as a mistake because I would have done better with a different horses.  I have a small basket of Australian big-4 banks including ANZ which is up about 100% since I purchased on 5/1/20.  I just didn't act to the degree I should have.  Oh well.

 

 

Did you continue to buy WFC as it declined into October/November 2020?  I think that WFC still has room to go, much of the potential good news hasn't had an opportunity to show up yet.

 

I lowered the strikes to $20.  Mostly this was done on 9/25/20. 

[Peregrine]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

Not no one. I was buying. I recall that Junto and Ericopoly were as well. This is value investing and it's hard. You can use any name you want really. When I was buying AAPL on sale at the end of 2018 almost everyone was running from it. Now everyone they're gushing over it. What changed? Nothing. Just the PR. Simply back then the stock was going down and now the stock is going up.

 

Value investing. Easy in theory. Tough in practice.

 

+1

 

I made a ton of money on this one over the last year, with a combination of stock and options. I remember some days during last spring and summer it was just dropping like rocks. It was nerve wracking but every time I felt anxious I just looked at the market cap vs. the book value and earnings power. It just didn't make sense.

 

I have started taking some profits here, especially with options. What about others?

 

I did sell my Jan 2022 $37.50 call options I bought last fall today. I previously rolled some to Jan 2023 $50 call options.

 

I was crazy long going into November (tilt is the best way to say it) and adjusted on the run up to overweight. I think there is room to run yet but definitely not the deal it was last fall. $45 is my fair value estimate right now.

 

That's where I have it pegged too...that will add another 100% gain to my current 200% gain on my WFC LEAPs.  Cheers!

 

Curious Parsad - what were the terms on those LEAPs you bought?

[Parsad]

What a ride this has been.

 

Six months ago, no one wanted to know about Wells, Warren was selling, it had conduct issues, rates were going negative, Wells was never going to make money again. Everything's (apparently) changed since and now it's up 50%+

Not no one. I was buying. I recall that Junto and Ericopoly were as well. This is value investing and it's hard. You can use any name you want really. When I was buying AAPL on sale at the end of 2018 almost everyone was running from it. Now everyone they're gushing over it. What changed? Nothing. Just the PR. Simply back then the stock was going down and now the stock is going up.

 

Value investing. Easy in theory. Tough in practice.

 

+1

 

I made a ton of money on this one over the last year, with a combination of stock and options. I remember some days during last spring and summer it was just dropping like rocks. It was nerve wracking but every time I felt anxious I just looked at the market cap vs. the book value and earnings power. It just didn't make sense.

 

I have started taking some profits here, especially with options. What about others?

 

I did sell my Jan 2022 $37.50 call options I bought last fall today. I previously rolled some to Jan 2023 $50 call options.

 

I was crazy long going into November (tilt is the best way to say it) and adjusted on the run up to overweight. I think there is room to run yet but definitely not the deal it was last fall. $45 is my fair value estimate right now.

 

That's where I have it pegged too...that will add another 100% gain to my current 200% gain on my WFC LEAPs.  Cheers!

 

Curious Parsad - what were the terms on those LEAPs you bought?

 

January 22, 2022 $27.50 strike price...bought them for $3.70 US each on average.  They fell all the way to just below $2 at one point, but I didn't catch it. 

 

Not as good as my Overstock.com January 22, 2022 $13.00 strike price LEAPs.  Bought them at $2.75 US and sold them between $22 and $30 US each.  If I had held them until Overstock.com hit $120, would have been like a 50 bagger!  Even bought Overstock.com shares at $2.99 US and sold them between $25-30 US...those would have been 40 bagger shares!

 

Cheers!

[Ballinvarosig Investors]

Any thoughts on the recent results? The market seems to love them, even after stripping out the release of the loss reserves, earnings were at about 70c, which is decent all things considered. I wouldn't be surprised that for 2022, we're going to see Wells earn somewhere in the region of $1 a quarter as the economy continues to pick up. That would put fair value at about $50 for me, maybe a little more if this can start growing again. My thoughts are this still has some more room to run, unfortunately the problem is if I sell, I am not sure where to put the money. Insurance/financials/energy were the few cheap sectors in 2020, but nothing is screaming cheap now.

[CorpRaider]

Seems like there are a lot more reserves to be released if Dimon is anywhere close to right about the economy.  I hope they grow the dividend very slowly from where it is and use the capital to attack the efficiency ratio and invest in tech.  Do buybacks if you absolutely want to return big chunks. 

 

 

Edited April 17, 2021 by CorpRaider

[changegonnacome]

1.5 Book Value per share....... ~$60........is my ceiling on WFC..............i expect it to get there but the speed at which its got to where it is today is surprising............I expected we'd be here at $4x but with the asset cap lifted........i expect $60 once yield curve is meaningfully steepening, asset cap is lifted & Scharf is showing meaningful progress on the $10bn on cost cuts.

Holding significant position since $24 with a mix of LEAPS and equity........but if this goes $50+ before summers end with no meaningful news on asset cap I feel like WFC has been swept into broad market exuberance and if better options are around (internationally) will consider selling then

[ERICOPOLY]

"I expected we'd be here at $4x but with the asset cap lifted."

But it was over $50 early last year without the asset cap lifted.

[changegonnacome]

14 hours ago, ERICOPOLY said:

"I expected we'd be here at $4x but with the asset cap lifted."

But it was over $50 early last year without the asset cap lifted.

Early last year......you mean pre-global pandemic........not sure what thats got to do with any price forecasting conversation I/we might be having now given how different the world looks now...........$50 before the global pandemic which caused increased defaults, significant fall in loan volume, rising corporate tax expectations & the complete change in inflation rate and interest rate expectations for the next number of years. The forecasted earnings power of Wells Fargo in Jan 2020 when it was at $50 are meaningfully different IMO now just given the environment hence why the asset cap being lifted is IMO a precursor to fair value of the franchise rising to $50+..........

Edited April 19, 2021 by changegonnacome

[ERICOPOLY]

2 hours ago, changegonnacome said:

Early last year......you mean pre-global pandemic........not sure what thats got to do with any price forecasting conversation I/we might be having now given how different the world looks now...........$50 before the global pandemic which caused increased defaults, significant fall in loan volume, rising corporate tax expectations & the complete change in inflation rate and interest rate expectations for the next number of years. The forecasted earnings power of Wells Fargo in Jan 2020 when it was at $50 are meaningfully different IMO now just given the environment hence why the asset cap being lifted is IMO a precursor to fair value of the franchise rising to $50+..........

This pandemic is only a blip in a DCF.  You're making way too much out of it.

[dcollon]

Changegonnacome,

I would take some time to go back and read some of Ericopoly's old posts.  I think you will find he has some very good insights on investing and making money.

The only reason I say this is some newer members might not have read his older posts. 

Regardless, I like the rough estimates of fair value you are using. 

All the best

 

[ERICOPOLY]

JPM and BAC are both trading roughly 10% higher than their pre-pandemic early 2020 prices.  And USB is a few percentage points away from it's early 2020 price.

comparatively...

WFC today still has another 22% to climb before merely getting back to its 2020 start.

[changegonnacome]

3 hours ago, ERICOPOLY said:

This pandemic is only a blip in a DCF.  You're making way too much out of it.

To be clear I'm a WFC holder with c.15% portfolio position. I'm also a realist and underwrite my portfolio positions every quarter. WFC has surprised even my optimistic projects of how its price appreciation would play out. I'm skeptical of its accelerated steeping is all. My point of divergence with your post @ERICOPOLY is in particular regard to my perception (perhaps wrong on my part) that in your post you felt WFC deserves to get back to its Jan 2020 price levels well just because nothing much has changed with the pandemic. When in fact i argue it has and all things being equal but most importantly the underlying company earnings have changed, now vs. Jan 2020 (full employment, rising rates, republican protected 21% corporate tax rate). The earning power of the business is lower now than it was then IMO. Therefore using Jan 2020 as a comparative benchmark which would be suggestive of what price WFC should be today is flawed. The price WFC was in Jan 2020 has no bearing IMO on what price WFC should be TODAY & broadly I generally dislike when people invoke past share price levels for companies when clearly meaningful shifts in a companies future cash flows have occurred.

The Pandemic itself might be a blip in a DCF  - but whats not a blip is it has given us the next four years of a Biden/Democratic controlled congress (no pandemic = Mr.Trump still president/Republican majority in senate = 21% corporate tax rate shielded/embedded), higher federal debt & Democratic largesse (infrastructure/ social infrastructure bill) making structurally higher US corporate & income tax rates inevitable (WFC is a full coin corp tax payer) & lower for longer interest rates hurting NIM's (especially for a bank under an asset cap). I guess I'm arguing that your making way too little of the pandemic and its downstream effects on WFC's future stream of cash flows five/ten years out NOW vs. Jan 2020

49 minutes ago, ERICOPOLY said:

JPM and BAC are both trading roughly 10% higher than their pre-pandemic early 2020 prices.  And USB is a few percentage points away from it's early 2020 price.

comparatively...

WFC today still has another 22% to climb before merely getting back to its 2020 start.

JPM & BAC are enjoying unprecedented investment banking/trading income right now....not perfect comp for WFC's more vanilla money centre operations / NIM business sitting under an asset cap. 

This is a slightly more nuanced point and one we can both agree on I think as beneficiaries of longer term..........is that moving forward the market will I believe in time pay a higher nominal and relative multiple for bank earnings than it has in the last decade (as the general level of S&P multiple itself moves up so should bank PE's). Bill Nygern from Oakmark made this point recently that banks have historically traded at two thirds the broad S&P multiple returning to even this historical differential would see significant multiple expansions. So WFC could indeed have reduced earnings power but in fact trade higher in this scenario.

My second reason to be believe multiple expansion will play in our favor is that ultimately the pandemic possibly put to bed the ghosts of the GFC.......these aren't the same banks of 2008........sure their ROE's aren't as good but with stronger equity bases, stricter lending standards and CECL accounting standards they are built for much choppier waters than before and the public has experienced that. In short bank earnings should be less cyclical and more predictable and so deserve a higher multiple moving forward.

[ERICOPOLY]

Investors are pricing in the pandemic for all 3 of the largest banks, and the same is true for any expected tax increases.

I can't explain that large of a gap between their relative stock performance with merely the effects of the cap -- WFC needs to rise 32% to $58 per share just to match the 15 month price performance of the other two.

$44 is also the lowest point for WFC for the trading period Jan 2014-Dec 2019.  That's six years.  At the start of that period there were 28% more shares.  And at the peak it hit $66 during Jan 2018, the month before the asset cap.  EPS were about $1/quarter.

And, by definition, the bank today is closer to the day when it has the asset cap lifted.  Unless it never has it lifted.

Edited April 20, 2021 by ERICOPOLY

[DooDiligence]

Wells Fargo earnings top estimates on $1.05 billion release of loan loss reserves

“Our results for the quarter, which included a $1.6 billion pre-tax reduction in the allowance for credit losses, reflected an improving U.S. economy, continued focus on our strategic priorities, and ongoing support for our customers and our communities,” CEO Charlie Scharf said in the earnings release. “Charge-offs are at historic lows and we are making changes to improve our operations and efficiency, but low interest rates and tepid loan demand continued to be a headwind for us in the quarter."

www.cnbc.com/2021/04/14/wells-fargo-wfc-earnings-q1-2021.html

---

Window dressing or legit confidence in their loan portfolio going forward?

[ERICOPOLY]

57 minutes ago, changegonnacome said:

JPM & BAC are enjoying unprecedented investment banking/trading income right now....not perfect comp for WFC's more vanilla money centre operations / NIM business sitting under an asset cap. 

USB is more of a vanilla comparison.  USB also sits today where it did in early 2020 before the pandemic.

[aceskc]

Jpm and bac earned more through the pandemic....double digit returns on tangible equity in 2020....wells essentially stayed flat...and they really haven not been able to cut costs and bring efficiency levels any closer to peers yet, on top of that they lost a lot of market share in helicoptered deposits in 2020..some deviation in pre/post pandemic prices is warranted ...on the flip side non interest income did pick up once again in q4 and if they re able to bring down expenses meaningfully this year the stock should re rate to a compare multiple of book as it’s peers . Market will start to price in dividend raise or meaningful impact from repurchases with the added kicker of asset cap possibility.