Top 5 Bank Stocks To Buy Today

3. Wells Fargo (NYSE:WFC): $28.46

Number of Hedge Funds: 86 (2020 Q2)
Number of Hedge Funds: 90 (2020 Q3)
Total Dollar Amount of Long Hedge Fund Positions:$8.5 billion
Percent of Hedge Funds with Long Positions: 11.0%
2020 Return (through November 27th): –45%
Popularity Ranking (2020 Q2): 33
Popularity Ranking (2020 Q1): 42
Noteworthy Hedge Fund Shareholders: Warren Buffett

Oakmark’s Bill Nygren said the following about WFC recently:

“One of our many financial holdings, Wells Fargo, has a market cap just under $100 billion, less than three-quarters of Zoom’s cap. But Wells is one of the big three retail banks in the U.S. along with Bank of America (also a current portfolio holding) and JPMorgan. The demand for retail banking has been relatively predictable and has grown with GDP. Ten years ago, the same three banks were the largest. Due to economies of scale, their market share has grown over the past decade. It doesn’t take much imagination to assume that 10 years from now, the banking industry will be larger than it is today and that these three competitively advantaged banks should have more market share. Banks have historically earned a low-to-mid teens return on their tangible equity, and we expect that to continue. The relatively narrow range of outcomes for any of the large banks stands in stark contrast to the very wide range for a small business like Zoom.

With many of the banks, including Wells and Bank of America, priced at single digit P/E ratios, we believe reversion to the mean is on our side. Financial stocks, including banks, have typically sold at about two-thirds of the S&P 500 multiple. They are currently trading at seven to eight times pre-Covid-19 earnings. And if they have accurately estimated their Covid-19-related charge-offs, they should quickly return to those earnings. We believe they deserve P/E ratios at least 50% higher than their trailing P/E ratios, which would be consistent with their long-term average. And when (or if) interest rates eventually rise, they are expected to produce a further increase in earnings. Compared to the small businesses that are now large-cap stocks, we believe the banks are both less risky and have larger expected returns.”