Is Wells Fargo (WFC) A Worthy Stock Investment?

Davis Funds, an investment management firm, published its “Davis Global Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. For the first seven months of 2021, Davis Global Fund returned 0.40%, underperforming the MSCI ACWI (All Country World Index) return of 13.08% by −12.68%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Davis Global Fund, in its Q3 2021 investor letter, mentioned Wells Fargo & Company (NYSE: WFC) and discussed its stance on the firm. Wells Fargo & Company is a San Francisco, California-based financial services company with a $195 billion market capitalization. WFC delivered a 62.06% return since the beginning of the year, while its 12-month returns are up by 67.73%. The stock closed at $48.91 per share on December 02, 2021.

Here is what Davis Global Fund has to say about Wells Fargo & Company  in its Q3 2021 investor letter:

“…This second chart highlights that financials remain the cheapest part of the market today and continue to be extremely attractive. Strong capital ratios, conservative lending practices, already recordlow interest rates and now a strengthening economy, all paired with low valuations, bode well for future returns.

Take our top financials holding in Wells Fargo, for instance. Wells Fargo is trading at 1.3x tangible book value, while we expect return on equity (ROE) to be in the mid-to-high teens over time. Even in this low-rate environment, the current multiple is only 12x 2021 owner earnings, and our IRR estimate is 12–13%. Wells Fargo has performed well this year, up 51% year-to-date, yet still looks very attractive, which speaks to how undervalued it was and why it is so important to be patient when investing in high-quality companies trading at low valuations. Rather than invest on the basis of unpredictable near-term catalysts, we prefer to be patient as earnings and cash build up, even if the stock price does not immediately reflect the economic reality. We continue to like our positions in financials.”

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Based on our calculations, Wells Fargo & Company (NYSE: WFC) ranks 27th in our list of the 30 Most Popular Stocks Among Hedge Funds. WFC was in 88 hedge fund portfolios at the end of the third quarter of 2021, compared to 94 funds in the previous quarter. Wells Fargo & Company (NYSE: WFC) delivered a 9.74% return in the past 3 months.

Disclosure: None. This article is originally published at Insider Monkey.