The search for yield (about 4% as of this writing) has emboldened me to finally buy some shares of Wells Fargo. My thesis is that as other investors hold back, scared off by regulatory overhang and uncertainty about the new CEO, the shares are trading at something of a discount.

I’m looking at a trailing price-to-earnings ratio of about 12 and thinking this is an attractive price for a big-cap financial stock in today’s market. Were the most recent quarterly results impressive? Not really. Were they reassuring? I’d say yes. Earnings and revenue fell short of analyst estimates, and the company warned that regulatory issues may not be resolved this year. But the company remains solidly profitable. My take, the drawbacks baked into the company’s stock price are overblown in the long run.

As I write this, I hear Billy Joel whispering in my ear:

“You may be wrong and you may be right.”

Analysts overwhelmingly have a “hold” rating on WFC. The average price target is $51, with shares trading at just under $49 mid-day on Jan. 17. The dividend is likely to be a key component of the total return for this stock this year and perhaps beyond. Still, it’s enough to tempt me into buying at a time when I think the broad stock market is largely overpriced.

 

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