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WFC Worth Another Look

I had held WFC for a long time until they run into ethical issues and with the Government litigations last year. I divest all of my WFC positions in the OneOnian portfolio in 2019 and early 2020.

It's not for everyone, but I think it's worth another look. Here are some key considerations.

  1. Big picture first, WFC at this point would be a value and turn around play. The value play is lagging behind growth and tech play in the current environment. So it may underperform against SP500 index.

  2. The broader market has about 34x Shiller PE ratio. The ratio of Total Market Cap to US GDP is at 185%. Both indicate high valuation multiples. Not the best time to invest.

  3. Banks profits from interest spread, it's hard to say how long the low interest will stay, but it can't continue forever. If you have a long horizon then and you believe the interest rate will raise, banking is a good play. and you have to be patient.

  4. With the new management team, change is on the way. How much impact on the culture and the bottom line remain to be seen. I am optimistic here.

  5. Insider purchase by the new CEO and director is a positive sign.

  6. Valuation reminded me of BAC back in 2012, a similar restructuring period starting at below the equity valuation. The current market of $135B is less than $181B equity and with $19B in net income.

  7. Technical indication, although not strong, shows a strong reversal to trending back up. The signal aligns with the insider buys, corporate restructuring, and as the company put the litigation and fine to rest and start the next chapter.

My action: buy a small position that's equivalent to the value play allocation that you have in your portfolio. You track what you have. If this pans out, it will make you money, but you may not make more money than other big tech plays.

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