On Monday,
Goldman Sachs (NYSE: GS) upgraded
Wells Fargo (NYSE: WFC) from "neutral" to
"attractive," citing the Wachovia acquisition as a long-term
earnings driver. The market's response was unequivocal, with
the shares gaining 7% on the day to close at $28.09. They're
up slightly since then. Did you miss the train, or is the
giant California lender still worth buying?
At first glance
Relative to its peer group, Wells Fargo shares look
pricey on the basis of price-to-book value multiples:
Company
Price/Book Value
Price/Tangible Book Value
US Bancorp (NYSE:USB)
1.830
3.680
Wells Fargo Â
1.570
2.920
JPMorgan Chase (NYSE:JPM)
1.170
1.840
PNC Financial
1.100
2.400
Bank of America (NYSE: BAC)
0.747
1.510
Citigroup
0.330
0.608
Source: Capital IQ, a division of
Standard & Poor's.
Nevertheless, Wells Fargo has consistently traded at a
premium to its peers. So let's take a look at different
indicators.
Tracking the "chairman indicator"
Last June, Wells Fargo Chairman Dick Kovacevich bought
approximately 40,000 of his bank's shares on the open market
at $26.05 per share -- his first share purchase since 1998,
at a price that is 9% below today's prices:
Date
Number of Shares/Average Price
Wells Fargo
Total Return
S&P 500 Total Return
KBW Bank Index Return
June 6, 2008
40,398 @ $26.05
18%
(20%)
(33%)
With hindsight, purchasing shares at the beginning of June
2008 proved to be too early. At that time, very few people
could foresee the Lehman Brothers bankruptcy, the Treasury's
involvement, or the March 2009 market low. Nonetheless,
despite these events, the return on that transaction has
already far exceeded that of the broad market and the banking
sector.
"Highly actionable"
Around the time of the purchase, Michel Painchaud of
research company Market Profile Theorems, called insider
purchases at Wells Fargo "highly actionable" -- a reliable
"buy" signal -- based on his company's model that tracks
insider activity at Wells Fargo, including Kovacevich's
buying and selling history.
Painchaud went on to say that Kovacevich has been a
prescient seller, earning the highest possible accuracy
rating for his insider transactions. With his next purchase
of shares, Kovacevich showed he's equally canny when it comes
to buying:
Date
Number of Shares/Average Price
Wells Fargo
Total Return
S&P 500 Total Return
KBW Bank Index Return
March 5, 2009
100,000 @ $8.05 Continued... |