As the fourth largest bank in the United States both by market capitalization and by assets, Wells Fargo stock has a prominent place in the financial services sector of the economy. Wells Fargo stock is a component of the Dow Jones Financial Index, the S&P 100 and 500 indexes and is considered a “cyclical” stock due to its dependence on the demand for financial services and a healthy economic environment. Trying to decide if it’s right for you? Read on to learn how to buy Wells Fargo stock.
Overview: Wells Fargo (WFC) and Stock History
Wells Fargo was founded in 1852 by Henry Wells and William George Fargo, who also originally founded the American Express Company. The company was based in San Francisco and intended to take care of the stagecoach express and banking business prompted by the California Gold Rush.
The company transported gold dust and bullion, as well as certificates and other products, moving the merchandise to the Isthmus of Panama and then overland to board ships on the East Coast. By 1866, the company had become the largest stagecoach operator in the West and consolidated all lines under the Wells Fargo name.
Wells Fargo was actually better known for its express stagecoach operation than for its bank by the beginning of the 20th century.
The current bank is known as Wells Fargo & Company and the firm’s primary subsidiary is called Wells Fargo Bank, N.A. as the result of a 1998 merger with Minneapolis-based Norwest Corporation and the subsequent acquisition of Wachovia in 2008.
Future Outlook for Wells Fargo
Wells Fargo stock hit a low of $6.40 per share in 2009 as a result of the global financial crisis, but it has been on an uptrend ever since. WFC stock hit an all-time high of $63.47 per share in January of 2018, but it then showed a yearly drop of -22% by the end of that year.
The future outlook for Wells Fargo depends in large part on the prospects for the U.S. economy in the near term. Since the top of the business cycle extended during the first years of the Trump administration, the cycle is overdue for a decline.
The flat yield curve and lower real estate prices also indicate the economy may be ready to head south, which would make the near term outlook for all financial and other cyclical stocks negative.
In a call with analysts on April 12, 2019, Wells Fargo Chief Financial Officer John Shrewsberry said that the bank expects net interest income to drop -2% to -5% for the year, versus the company’s previous forecast of -2% to +2%.
Shrewsberry’s reasons for the decline included a lower absolute rate outlook, flatter curve, tightening loan spreads resulting from a competitive market with ample liquidity and continued upward pressure on deposit pricing.
Pros of Buying Wells Fargo Stock
- Attractive dividend: WFC pays a $0.45 quarterly dividend, which yields more than 4% at WFC stock’s current price. That dividend yield would make the stock attractive to income-minded investors.
- Low price/earnings ratio (PE): WFC stock trades at 9 times its current earnings, which is low even for the banking sector. Generally, a low price-earnings ratio indicates that the stock may be somewhat undervalued, although a low PE could indicate other potential problems weighing on the stock price.
- Positive Analyst Research: According to some analysts who follow WFC stock closely, the negative news from recent scandals is already priced into the stock, so they’ve recommended that their clients buy WFC stock.
Cons of Buying Wells Fargo Stock
- Stock market/business cycle: A widely-anticipated slowing of the U.S. economy would translate into less business for everyone, with cyclical U.S. stocks usually being the first to sell off.
- Internal misconduct: The company has been subject to numerous lawsuits for its own misconduct. For example, in 2016, the bank paid $185 million for the fraudulent creation of 1.5 million checking and savings accounts and 500,000 credit cards that were never authorized by its customers in Los Angeles.
- Loss of consumer confidence: The account fiasco was just one of many lawsuits Wells Fargo has settled for hundreds of millions of dollars. Because of the accounts scandal that took place in 2016, many people have withdrawn their money and business from Wells Fargo. The company still faces an uphill battle to regain public trust.
- $2 trillion asset cap: In February 2018, the Federal Reserve put an asset cap of $2 trillion on the bank until the bank “sufficiently improves its governance and control.” The cap was extended and will continue until at least the end of 2019. The Federal Reserve’s asset cap has already cost the company considerable growth potential and will continue to weigh on future earnings. Despite the cap, bank officials have expressed confidence that it can meet all of the Fed’s requirements and continue to operate normally.
How to Buy Wells Fargo Stock Using a Broker
Step #1: Pick a Broker
Once you know what you need from a broker, you can better determine the best online brokerage for you.
For example, if you need a bank account and a brokerage account, you might try E*TRADE, since it operates an online bank as well as a brokerage. If you have more of a trading background and want to trade multiple assets, then a broker like Interactive Brokers might suit your needs. If you’re looking to trade for free, check out Webull.
|Broker||Best For||Commissions||Account Minimum||Choose your platform|
Get started securely through Webull’s website
1 Minute Review
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit. Webull is widely considered one of the best Robinhood alternatives.
||$6.95 for fewer than 30 trades/quarter.||$0||
Get started securely through eTrade’s website
1 Minute Review
E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.
60 days of commission-free trades with deposit of $10,000 or more
||$0.005 per share minimum $1 and maximum 0.5% of trade value; volume discount available||$0 for cash account, or a margin account with $2,000||
Get started securely through Interactive Brokers’s website
1 Minute Review
If you consider yourself a sure-footed professional trader, Interactive Brokers might be a major possibility for you, particularly if you’re adept at navigating tricky trading platforms (can you say 124 option indicators?) or have done more than just dipped your toe a “coupla times” into the complex world of international markets.
Lower minimum activity requirements ($3/month) and opening account minimum requirement ($3,000) for clients 25 and younger.
Step #2: Evaluate Different Brokers’ Trading Platforms
Most online brokers offer their customers a virtual or demo account to evaluate their platform and practice trading without committing any funds. You can open accounts like this with as many brokers as you want to see how well each trading platform fits your needs. Remember, trading platforms vary from broker to broker, and some include features you will not find with others.
Step #3: Fund your Trading Account
In order to purchase WFC stock, you must deposit funds into a trading account. Depending on how much you budget for your stock purchase, you should deposit at least that amount into the trading account and/or the minimum deposit amount required by the broker, whichever is greater.
Keep in mind that each broker has its own rules for deposits and withdrawals. Most take credit cards and bank transfers for deposits, so make sure you have access to the right method for making deposits.
Step #4: Buy Wells Fargo Bank Stock
Now, put in a bid in for WFC stock. Hopefully, you’ve done enough trading in the demo account to know how to enter a buy order.
You may also want to closely watch WFC stock to get a feel for the market and determine an optimum price to buy at.
Another good idea is to check the news. News can often affect the price of WFC stock and could provide a buying opportunity or signal that better levels may occur in the future.
A good way to determine a price level to purchase Wells Fargo stock is to analyze the stock with technical analysis to get a sense for the best entry price and time to buy. Once you have decided on the level, you can enter a bid either at the market or at the lower price level you think best.
Is Wells Fargo Stock for You?
Today, Wells Fargo offers an impressive broad-based banking sector investment. It provides its customers with banking, investment and mortgage products and services and offers financial services at 7,800 locations, with more than 13,000 automatic teller machines (ATMs).
Wells Fargo also has a presence in 37 countries and serves 1 in every 3 households in the United States. The company was ranked at number #26 on Fortune’s 2018 ranking of the largest U.S. corporations.
The bank, along with JP Morgan Chase, Citigroup and Bank of America, is currently one of the “Big Four” banks in the United States, which makes it attractive for many investors looking closely at the financial sector.
Nevertheless, due to its cyclic nature, WFC stock would do best in an economic upswing, such as the one we’ve experienced for the past several years, although the future economic climate may not be as favorable for the bank. Wells Fargo also has a number of headwinds to overcome and so its stock may not be the best way to invest in the current market environment.
Watch the business cycle, too, which appears to be topping out as can be witnessed by the flat yield curve and soft real estate prices, and a future economic decline will negatively impact all cyclical stocks like WFC. While WFC could gain modestly in the short term, given the current market and economic environment, defensive stocks seem to be more suitable for long-term and medium-term investments.