Earnings season has officially begun, and there were several companies that either reported earnings or provided preliminary earnings, which created a significant amount of stock movement. In this piece, I am looking at the most volatile of stocks on Friday, determining if any are a post-earnings buy.
Solid Quarter, But Worthy of a Premium?
What stuck out most to me was a decline in charge-offs. This decline reflects an improving credit quality for the bank. However, with both Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) trading below their book value per share and JPMorgan Chase & Co. (NYSE:JPM) creating double-digit revenue growth, it’s hard for me to pay a premium to invest in Wells Fargo & Co (NYSE:WFC).
Moreover, Wells Fargo & Co (NYSE:WFC) is the mortgage leader, controlling 22% of the market. To many, this might be a positive. But with uncertainty surrounding rates, and the company heavily dependent on this business, I think the stock’s premium is too much in an industry that is quite cheap.
Business Volume on the Decline
To me, the EPS is irrelevant compared to package volume, as EPS is a measure of efficiency while package volume notes operational strength. Sure, the industrial economy has been weak, and we all knew it, but volume is a metric that everyone believed was beginning to stabilize. As a result, at 1.59 times sales and 16 times future earnings, United Parcel Service, Inc. (NYSE:UPS) is slightly more expensive than the S&P 500. Thus, I’d seek value elsewhere.
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