Wells Fargo May Look Cheap, But I'm Not Buying
Wells Fargo (NYSE: WFC) has outperformed all of the major banks this year, with its stock price down only about 4% year to date. In comparison, its major competitors have all posted double-digit drops this year. Its valuation has also come way down with a forward price-to-earnings (P/E) ratio of 9, and a minuscule five-year P/E-to-growth (PEG) ratio of 0.19. Both are indicators of an undervalued stock.
With its solid revenue gains in the most recent quarter and improving credit quality, it has been a nice safe haven for investors in this market. While it looks attractive and appears to be a solid buy, there is one major reason why I would look elsewhere if I were to add a bank stock to my portfolio right now.
The primary reason that Wells Fargo is performing better than its mega-bank peers is that its revenue is more reliant on consumer banking than the others, like JPMorgan Chase, Bank of America, and Citigroup. In the most recent quarter, Wells Fargo generated roughly 48% of its revenue from its consumer banking and lending arm -- about $9.3 billion of its $19.5 billion in quarterly revenue.
Source Fool.com
