If you want to invest in bank stocks, legendary Warren Buffett says buy Wells Fargo.
Wells Fargo, the fourth largest bank holding company in the United States with $1.22 trillion dollars in assets emerged from the financial crisis in far better shape than many of its large competitors. The management team at Wells avoided high risk areas such as sub prime lending and focused on organic growth rather than acquisitions.
During the financial crisis, Wells picked up troubled giant Wachovia Bank for a bargain price of $7 per share. As the banking industry continues to rapidly consolidate, major players such as Wells stand to gain additional market share. Analysts are projecting that Wells earnings will increase substantially in 2011.
Warren Buffet has been a long time shareholder in Wells Fargo stock and since 2005 has more than doubled his holdings in the company to 320 million shares. In a recent filing with regulators, Buffet’s Berkshire Hathaway Inc. disclosed that as of September 30, holdings in Wells Fargo had increased again to 336.4 million shares. Wells Fargo is now the second largest holding of Berkshire Hathaway after Coca-Cola.
Buffet’s affection for Wells Fargo was in full display at the May 2009 stockholders meeting of Berkshire Hathaway when he stated that “If I had to put all of my net worth into stock, that would be the stock”. Buffet has also categorized Wells Fargo as a “superbly managed, high return banking operation”.
As the world’s most successful investor, Buffett’s stock picks are always of major interest to the investing public. What kind of a return would an average investor have achieved by investing in Wells Fargo? As with most things in life, timing is everything.
Wells Fargo has had spectacular long term price appreciation, moving from $1 a share in 1985 to a peak of $37.53 in September 2008, with multiple stock splits and dividend payments during that time period. Warren Buffet has always said that his holding period for stocks is “forever”. Long term investors in Wells have done quite well.
An investor who purchased Wells Fargo in December 2000, would have paid $27.85 and almost 10 years later, still be underwater on his investment (excluding dividends).
An investor following Buffett’s advice to put his entire net worth into Wells at the depths of the banking crisis, would have experienced over a 200% increase in net worth.
Will an investment in Wells Fargo today produce the type of return that was seen from the mid 1980’s to 2008? The law of large numbers suggests not. Nonetheless, following the advice of Warren Buffett over the long term has rarely turned out badly.