During the darkest days of the market collapse of 2008 and early 2009, there were two areas I knew would never go over the cliff that seemed so close back then – banks and housing.
It would be a long road back for both, but I owned both and never had a doubt.
Both are essential. The world cannot function without them. Banks, because the worldwide money system in the developed and emerging worlds is built around them, and housing because, well, because we have an ever-expanding population and everyone needs a place to live. Someone has to build the houses.
Today’s idea is a combination of both industries, and I think a sure hit for many years to come: Wells Fargo (NYSE: WFC).
WFC lends more mortgage money than any other bank. And, while virtually all banks have been retreating from the home loan business in the years since the collapse of the housing market, WFC has charged forward.
They accounted for 28% of all mortgages issued last year, which was a record $524 billion. And, as interest rates continue to climb and mortgage rates have already moved from the low 3’s to the low 4’s, WFC will make a killing on the spread between what they pay to borrow and what they can charge for mortgage interest.
It’s still a challenge for some people to qualify for a home loan, but, as rates rise, banks will loosen up the qualifying requirements and WFC will be first in line to benefit from the easing.
WFC has a 2.9% dividend, very high for a bank of this quality, good earnings and revenue estimates, very achievable estimates, and has an annual growth rate of about 8% for the next five years.
My only concern with this one is the same concern I have for just about all of the companies we want to own – price.
WFC, along with just about every other big-cap dividend payer, is sitting about 20% above its 200-day moving average – not a good short-term sign. I would prefer to see it at, below, or at least not as high above the 200-day.
You can still own it here if you can ride out what looks like a short-term rough ride. But, I’d put this one on your bogie board and buy on weakness or a broad market sell-off.
Bargain hunting: Learn to do it or continue to pay too much for a stock. But that’s for next time.