Hot Stock: Wells Fargo

Buy this bank.

Bryan Borzykowski 0
(Photo: Sandy Huffaker/Bloomberg News/Getty)

(Photo: Sandy Huffaker/Bloomberg News/Getty)

It’s unlikely most Canadian investors are looking for another bank to own. With financials accounting for a large chunk of our market, there’s a good chance you’re holding at least one big-name money lending institution in your portfolio right now. While the domestic banks are great companies, there is a case to be made for holding another financial name or two, though you’ll need to look to the States for these buys.

U.S. banks took a beating during the recession, and while many have recovered, they also still have a ways to go before people stop worrying about whether they might fail. That’s made a lot of companies in the sector pretty cheap, yet many are growing at a healthy clip. They’re also benefiting from the recovering auto and housing sectors; Canadian banks on the other hand are hoping the Canadian real estate market doesn’t crash.

One of the best banks to buy right now is Wells Fargo (NYSE: WFC). It was one of the only institutions that actually acquired companies during the recession and is greatly benefiting from America’s improving economic fortunes. Q4 2012 profits increased 24% year-over-year thanks to  housing sector exposure. Net income was $5.1 billion, or 91 cents a share, beating analyst estimates by two cents.

Analysts at JPMorgan don’t think Wells Fargo’s fortunes will reverse anytime soon. In a March 18 note, the company reiterated its overweight rating and its $41 price target — it’s at $37.35 now. According to the analysts, the bank is in the process of revamping its credit card business. It plans to launch new products with better rewards sometime in 2014. This is significant, they wrote, because Wells Fargo customers are currently spending four times as much on competitor cards than on Wells Fargo branded cards. By updating their offerings, the bank hopes it can double its credit card loans from $25 billion today to $50 billion in the coming years.

Wells Fargo is also a major auto loan lender and with an improving auto sector, this division should see revenues rise. JPMorgan’s analysts point out that the bank is growing its lending business by partnering with more automakers, such as GM and Tesla. It’s expanding the number of auto dealers that make use of its financing and also selling other types of dealer commercial financing.

According to Bloomberg, 53% of analysts that follow Wells Fargo have a buy rating, while 44% have a hold. Price targets range from $38 to $44.75. The company is also cheap, trading at about 11 times earnings and pays a 2.68% yield. You may not need another bank in your portfolio, but don’t overlook a solid, growing company that’s benefiting from an economic recovery.

For more investing insights, follow Bryan on Twitter @bborzyko.

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