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valuemoney (99.99)

Wells Fargo WFC

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December 20, 2009 – Comments (23)

I am writing this post to show why most of my money is going into WFC at this point in time. First I am going to start with the balance sheet. That is where I start with every company I look at.

Reference WFC 10K and 10Q balance sheet.

Now first place I am looking at to even see I if I should even bother with this bank is the ratio of long term debt to short term debt 1.5 to 1 is favorable but WFC is even better than that . Banks get in trouble if they borrow short and lend long. Ask Bear Stearns! They are an extreme case. Bank of American had 2 dollars of short term debt to for every dollar of long term debt. That got them in more trouble than most of its peers. The stock price of BAC reflects this. We all know now leverage can get u into big trouble. OK back to WFC. If u go into quarterly u will see WFC now has just $.14 of short term debt for ever dollar of long term debt! (30.8 billion of short term to 214.29 billion) That makes me be able to sleep at night.

 The Wacovia deal will take WFC over the top because of total deposits. In three years I am willing to bet earnings each quarter will be just over $4 billion a Quarter and net income will be $16 billion or more for the year. Now put a 15 PE on that and u have a market cap of 240 billion. Currently the market cap is 125 billion, with dividends that will be double your money. Now a safe investment that will double your money in 3 years I am in. Just over half of ALL my money is invested in WFC at this point in time. Granted there are many other deals out there right now but I am looking pass the three years. Pull up a long term chart of WFC 1985 to present. Not many companys can top that performance. WFC went through this same housing stuff in early ninetys. LOL it is nothing new and it will happen again. But with WFC lending practices I feel confident it  will weather the storms. 

Look at interim income statement WFC is making 3 billion currently each quarter after wacovia deal. This is with loan loss provisions sky high and a terrible economy. And there is gonna be some pent-up housing and building demand because no one is building right now. In 5 years when the ecomony is ripping I know WFC will be too. 

23 Comments – Post Your Own

#1) On December 20, 2009 at 3:05 PM, Option1307 (29.91) wrote:

Some decent points overall, but

Just over half of ALL my money is invested in WFC at this point in time...

Wow now that is a scary thought. No matter how sure of an investment you think you have found, I would never put this much money into one single stock. Especially a bank stock that has already jumped over 150% the last 6-9 months.

Hopefully you at least picked some of this up before the massive run up. Best of luck!

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#2) On December 20, 2009 at 3:47 PM, NOTvuffett (< 20) wrote:

valuemoney,

Isn't WFC considering a stock sale to raise money?  Maybe I am wrong on that.

I think WFC is a solid company, and that their acquisition of Wachovia will be a good move for the long run.   But don't you think WFC is trading at near fair value right now?  That doesn't scream bargain to me.

I was lucky enough to spot it when it was $9 and change and sold it for $24 something.  I am thinking about buying more for a long position.

 

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#3) On December 20, 2009 at 3:51 PM, throwerw (29.44) wrote:

"Sometimes it doesn't make sense not to put half of your net worth into one stock."

- Warren Buffett

He also mentioned shortly after the march bottom, that if he could have put his entire net worth into one stock it would have been wells fargo.

the fast that the stock has moved up 150% in the past 6-9 months is irrelevant; what matters is the value and price paid. 

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#4) On December 20, 2009 at 4:03 PM, goalie37 (93.40) wrote:

WFC is also a long term hold for me.  The critics have been saying that there are still some write downs to be taken from the Wachovia deal, but I think that was known when the deal was originally made.  That's why we got Wachovia so cheap.  I also think that the dividend will be put back to normal now that TARP has been repaid.  A third possible bonus would be reinstatement of Glass-Steagal - WFC would be forced to divest itself of many assets, hopefully in the form of an IPO.

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#5) On December 20, 2009 at 4:07 PM, Starfirenv (< 20) wrote:

They lost a Jet Yesterday. Appearently no execs were on board.They suspect bad fuel from the DR.
http://www.dominicantoday.com/dr/world/2009/12/20/34256/Bahamian-investigators-search-for-jet-wreckage

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#6) On December 20, 2009 at 4:22 PM, Option1307 (29.91) wrote:

throwerw

He also mentioned shortly after the march bottom, that if he could have put his entire net worth into one stock it would have been wells fargo.

Fair enough points; however, a lot has changed since the march bottom. I'm not so sure Warren would be putting his entire net worth into WFC at this current level.

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#7) On December 20, 2009 at 6:26 PM, valuemoney (99.99) wrote:

 NOTvuffett 

I went the other way originally. I purchased USB at 15 and change. It was just recently I finally woke up and realized what was going on with WFC when looking at their 10Q's. I recently sold my USB shares at 24 and change and swapped them for WFC my average buying price has been $26.68 a share. I was to nerveous to buy WFC because of 25 billion in tarp on the books. With recent news and a favorable payback in my view. I feel 100% confident in my purchase. USB I feel is undervalued right now and a great bank but comparing these 2 at those prices I feel WFC is greatly discounted even at $26.68. I am betting half the farm on it LOL. The market itself is still undervalued. People will look back in 5 Years and say "why wasnt I buying when S&P was still trading at 1109." I thought it was to big of a run up after the March lows. NEWS FLASH EVERYONE the march lows were idiotic. If I had to pick one stock to outperform the market in the next ten years it would be WFC. My accurracy is currently 89% on CAPS but with my money it better be 100%. With WFC I am 100% confident. 

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#8) On December 20, 2009 at 7:06 PM, Imperial1964 (98.25) wrote:

From the last 10Q:

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, we engage in financial transactions that are not recorded in the balance sheet, or may be recorded in the balance sheet in amounts that are different from the full contract or notional amount of the transaction. 

 

I don't know how you can be 100% certain of your balance-sheet analysis when there are off-balance sheet liabilities.  Perhaps Warren Buffet has detailed information about these SPEs, but I suspect you do not.

We could have an intelligent disagreement over potential alt-a, commercial, and junior mortgage losses.  But that can all that is useless if we don't know what they have off-balance sheet.

I will not invest in a company that has off-balane sheet arrangements that are not detailed in its SEC filings.  Good luck to you.

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#9) On December 20, 2009 at 9:01 PM, valuemoney (99.99) wrote:

Imperial1964 Very fine point and I knew this,

 

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, we engage in financial transactions that are not recorded in the balance sheet, or may be recorded in the balance sheet in amounts that are different from the full contract or notional amount of the transaction. 

would come up from an intelligent caps player. And guess what u are right! But do really believe there is something god awful in there that just came up? WFC is 18% of BRK.A stock holdings at the end of Q2. I doubt Buffett would take any kind of gamble what- so- ever. From past history with Warren Buffett and WFC, I highly doubt there is something God awful scary in there. John WFC's ceo is no idiot. I would have to say he might be best bank manager out there. I have heard him talk. Very upfront and forward. No worries here.

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#10) On December 20, 2009 at 11:07 PM, SockMarket (48.23) wrote:

If there are good reasons to buy wells fargo these aren't it. This is a poor witeup. The fact that they have alot of long term debt vs. short term debt means they probably won't collapse (a much more important ratio is short term debt to sustainable cash flows). It does not mean they will go up. Your earnings estimates are WAY off base (in my opinion) and I would put no more than 5% of my assets in any bank at this point (and if I were to choose one it would be GS or JPM). I know Buffett bought a bunch, and I am sure he has his reasons, but I still find it a risky proposition, especially with the kind of money you are talking about.

So, a couple questions for you:

1) how can you justify those ernings figures
2) what is discounted fcf to short term debt (projected) over the next 5 years?
3) what did WFC & Wachovia earn from 1995-2000 (with wachovia earnings discounted 60%)? The big discount is due because that is the average % of people that leave after a bank takeover.

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#11) On December 21, 2009 at 12:31 AM, valuemoney (99.99) wrote:

danielthebear Do me a favor and list a portfullio for me and make it one I can hold for 5 years. List it under this blog and tell me % in each to put it in each, then in 5 years I will be able to tell which  gained more mine or yours. I will just go with WFC and the market. U can list as many picks as needed.

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#12) On December 21, 2009 at 1:10 AM, valuemoney (99.99) wrote:

projected 2011 profits and normalized profits starting in 2012. Wells Fargo, JPMorgan and Bank of America trade for under nine times projected 2011 profits and for about six times normalized earnings. Morgan's normalized profits are an estimated $7 a share. Wells Fargo, now trading around $26, is seen producing normalized earnings of about $3.75. Bank of America, now around 15, could earn $2.75 in 2012. Put a price/earnings ratio of 10 times on normalized profits, and each of these three stocks could climb as much as 80% in the next two years. That was just posted in Barron's. That is in two years. How did they come up with those numbers? danielthebear

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#13) On December 21, 2009 at 1:27 AM, valuemoney (99.99) wrote:

Big Opportunity in Four Big Banks this is the artical. I dont even need to see this article to put my numbers on 3 year estimates. Someone does not need a degree for investing. There are only about 85 stocks in which I choose from for my real money accounts. Common sense works best.

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#14) On December 21, 2009 at 1:43 AM, valuemoney (99.99) wrote:

LOL $3.75 a share 4.69 billion shares comes out to 17.59 billion earnings and that is in 2012 according to Barrons. So is my projection of 16 billion for 2013 that far off. I also said three years because Wachovia deal write down will be over. And market should be normal by then. Full disclosure; I saw this artical after I posted my blog and came up with those make believe numbers.

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#15) On December 21, 2009 at 1:53 AM, valuemoney (99.99) wrote:

LOL maybe my 2013 estimates are too low! Look back at WFC. Has it ever taded at 15 times earnings?

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#16) On December 21, 2009 at 2:02 AM, valuemoney (99.99) wrote:

 

Ron Beasley wrote:

Wells Fargo's "normalized" earnings will, I think, be substantially higher than $3.75. With pretax, pre-provision earnings of well over $40 billion in the next two years, and provisions decreasing from a current $24 billion annualized rate to about half of that, earnings could easily be in the $4.50 to $5 range in a couple of years. In addition to higher revenues from increased market share in banking, a healthy brokerage business, growth in its capital markets and insurance businesses and lower provisions, Wells will achieve significant cost savings from the Wachovia merger. Wells Fargo is the largest equity holding in my personal and client portfolios.

Ron Beasley
www.rwbi.net

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#17) On December 23, 2009 at 1:08 PM, SockMarket (48.23) wrote:

vm,

sorry about the late reply. I think Barrons is WAY more bullish than they ought to be considering that when the big 4's earnings topped out in 05-07 they were all well underneath these levels (save BAC) despite some of the best times the business has seen is about 80 years.

I don't have acess to 2011 estimates but I am much more inclined to go with the mean 2010 estimated EPS of $1.86 (according to Forbes). Put a P/E of 15 on that and you get $28. It is at $27 as I write this. As I said before, there may be good reasons to buy it (like it is selling for just $3B over book) but right now I don't see them in your writeup. 

As for the portfolio I am happy to do that, however you have to understand that my position is such that my goal is to earn S&P +3-10% with little risk. So if we do enter an economic boom WFC may well outpreform me. However as long as I keep to my goal I would still consider my portfolio a sucess because if we do double dip (and I would not rule that out to the question now) you could have been sitting on a $12-18 stock very easily, a loss that I would not be willing to take. That said, here it goes.  

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#18) On December 23, 2009 at 1:20 PM, SockMarket (48.23) wrote:

BNSF (BNI) - 15% - hold onto BRK-B after the merger

XTO (XTO) - 10% - hold onto XOM after the merger

Amerigas (APU) - 10% 

Sub. Propane (SPH) - 5%

Patriot Coal (PCX) - 5%

Southwest Energy (SWN) - 5%

Nordic Am Tanker (NAT) - 5% -note: I would buy only under $30, and it drops every few months, but you are free to give me todays price if you want

Verizon (VZ) - 5%

First Solar (FSLR) - 5%

China Mobile (CHL) - 5%

Infosys (INFY) - 5%

Geogria Power Pfd. (GAT) - 5%

P&G (PG) -5%

CNR (CNI) -5%

Norfolk S. (NSC) -5%

Goldman Sachs (GS) - 2.5%

JP Morgan (JPM) 2.5%

 

That ought to do it.

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#19) On December 23, 2009 at 4:55 PM, valuemoney (99.99) wrote:

Thanks danielthebear. I think your portfollio isnt to bad but I think we just have a different outlook. 2013 numbers are going to be nothing like 2010 or 2011 numbers in my opinion. Loan loss provisions will be dramatically lower in 2013 and that almost goes dollar for dollar on pretax profits. Total deposits at Wells went from 310 million in 2006 to 796 million in 3rd quarter 2009. That is 250% increase. Wells Fargo has effectively double and they did this with a bargain deal. Look they are already making over 3 billion a quarter with huge loan losses. Now granted they wont next quarter because of write downs. Wells MADE money last year when most all other banks lost money. I think there will even be right ups in 2013. Yeild curve is almost never wrong either and right now it is steep. Saying 4 to 5% GDP growth in 2010 even and yield curve in 2005-2007 said it was not going to be good and guess what it wasnt. 

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#20) On December 23, 2009 at 5:36 PM, valuemoney (99.99) wrote:

Add u can't use PE's on stocks on terrible year. AA would be worth 0 and same with many other companies last year. AA isnt worth 0 you know that. Let talk about your choice JPM that almost doubled deposit wise too. JPM uses leverage a little more and might benefit a little more over these next three to five years but 5+ years my bet is on WFC. JPM loan loss provisions in 2008 was a whopping 20,979 million and in 2006 it was only 3270 million. Now in 2013 your will see more normalized loan losses HENCE - JPM will be making WAY more money. The strong makes there purchases in bad times like JPM ,WFC ,BRK.A, XOM. when prices are low and others are not going all in because they are scared talking about double dips and what not. Then 2013 comes up and those who didnt buy look back and say "BOY I SHOULD HAVE LOOKED FURTHER AHEAD AND BEEN BUYING WHILE EVERYTHING WAS CHEAP"

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#21) On December 23, 2009 at 5:47 PM, valuemoney (99.99) wrote:

As for WFC going down below 20 dollars. I HOPE IT DOES because new monies will be going there and my returns on the new money will be even greater in 5 years.

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#22) On December 26, 2009 at 4:55 PM, SockMarket (48.23) wrote:

vm,

The strong makes there purchases in bad times like JPM ,WFC ,BRK.A, XOM. when prices are low and others are not going all in because they are scared talking about double dips and what not.

first off your english is an abomination. Second I am not buying anything right now. And I did buy when prices were down. Those were, however, the only stocks that I would consider owning at their current prices when you offered the challenge. Third, stocks are not exactly low right now. At least that is the general consensus among the top players here.

My goal is to protect my assets and grow them at a reasonable pace, not jumping out on limbs based on the fortunes of one company.

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#23) On February 25, 2013 at 9:56 PM, JohnCLeven (79.34) wrote:

Three years later, your net income prediction for Wells turned out to be pretty accurate.

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