Wells Fargo & Company (NYSE:WFC) was among the stocks Jim Cramer reviewed on Mad Money while discussing the recent market rotation. Cramer mentioned the stock while discussing the valuation of bank stocks. He stated:
I am getting tired of hearing that this market’s too expensive. Anyone who feels that way should take a hard look at the big banks now that they’ve all reported because they sure don’t seem very expensive to me… I would tell you their stocks are so darn cheap versus the entire market that we have to think about owning one. If something good happens, the banks will all take off because they’re so darn cheap. What do I mean by cheap? Okay, I’m talking about an apples-to-apples comparison versus the price-to-earnings multiple of the S&P 500. Yes, you can figure out the PE multiple of the S&P by taking the earnings per share estimates of all the companies in the index collectively and then giving them the same weightings that the stocks get.
When you look at these comparisons, they are, for lack of a better word, insane. The S&P 500 trades at nearly 22 times this year’s earnings estimates. The expected earnings growth rate of the S&P is 17%… Now, let’s consider the banks on this apples-to-apples basis. Citigroup is expected to see 52% earnings growth this year. It sells at 12.4 times this year’s earnings per share estimates. Goldman Sachs is expected to grow by 14.9%. It trades at 15 times earnings. Bank of America is expected to grow by 14.2%. It sells for 12.5 times earnings.
Morgan Stanley’s expected to see 11.7% earnings per share growth. It sells for less than 17 times earnings. Wells Fargo, look, it had a not-so-hot quarter, but it’s still expected to grow by 11.7%, and it trades at 11.5 times earnings. JPMorgan’s expected to grow at 9.7%, and it’s got a PE multiple of 13.9. Or in other words, with these bank stocks, you have companies that are growing a tad slower than the average stock of the S&P, but in terms of valuation, they sell at a dramatic discount to the S&P as a whole, huge discount… Right now, though, they have the lowest price-to-earnings multiples in part because they’re considered to be brimming with weak private credit exposure. But for the most part, that’s not true either. Even Wells Fargo did their best to say it. Although they had a lot of private equity, only a small part was the hated software category.
Photo by Erol Ahmed on Unsplash
Wells Fargo & Company (NYSE:WFC) provides financial services, including banking, lending, investment, and wealth management solutions.
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