Tuesday, April 2, 2013

Wells Fargo Annual Report

"In 2012, we grew revenue 6 percent to $86.1 billion, mostly from noninterest income. (Imagine our earnings power when a more normal rate environment returns.) The revenue growth included double-digit growth in our capital markets, commercial real estate, corporate banking, mortgage, asset-based lending, corporate trust, and international businesses." - John Stumpf - 2012 Wells Fargo Annual Report

John Stumpf is an amazing CEO and runs a tremendously profitable company in Wells Fargo (WFC).  I too can only imagine the earnings power when a more normal interest rate environment returns.  Wells Fargo will be an earnings dynamo. 

It was just over two years ago when I woke up and realize what a ridiculously cheap price Wells Fargo was selling at.  Since then I have averaged 16.5% annually plus dividends in a sub optimal economy.  Bring on the good times.  I fully expect the dividend on my original cost to yield over 8% within two years as the economy normalizes and earnings per share reaches $4 in 2014.

I find it remarkable how nobody is interested in a boring, yet high quality bank like WFC.  Meanwhile Warren Buffett is quitely buying 1.2 billion dollars worth of their stock in 2011 and 1.8 billion dollars worth in 2012.  I have been beating the drum on them for the past two years too.  During that time frame, the earnings per share has risen 23.5% annually.  I also believe that an investor today will also realize a benefit from the low relative valuation, not just earnings growth.  Growth and value are joined at the hip.   

Best Regards,
Kevin Graham

Disclosure: Long WFC

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