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FINANCIALS

Wells Fargo & Company (WFC): Buy the Dip in Shares before a Bullish Run

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Illegal sales of accounts might have damaged the stock temporarily but gives an opportunity for investors to ride with the bulls

Wells Fargo (NYSE:WFC) stock had a beating on Friday as it slipped 2.36% on big volume trading. The reason was that the banking giant was charged $185 million for opening unauthorized accounts under their clients’ names. The stock is poised to jump higher in the next 12 months as majority of the analysts see an upside; however, the news last week surprised many investors and might have a different view on the stock in the coming weeks.  

Wells Fargo stock is perfectly positioned for a bull run as the company is in a strong position despite the decline in year-over-year earnings. The company’s reputation may have been dented by the act of opening accounts with client’s permission under their names, but the company can come over on top of the situation in little time. Banks remain in a strong position as the expansionary monetary cycle seems to be over and banks look to make most from increased net interest margins when the rates increase. The Federal Reserve is expected to increase rates by at least 25 basis points this year, according to most of the analysts.

However, there is a lot of market volatility expected in the coming weeks as Federal Reserve makes its decision and the US presidency can also significantly move markets. Amongst all the major US banks, Wells Fargo has the lowest beta number which minimizes the market risk against the volatility. Therefore, Wells Fargo remains a safer bank stock amongst its peers.

The stock chart is creating an ascending triangle pattern with a resistance line at almost $51 level. The pattern suggests a bullish sign on the stock price as the next time it touches the resistance level it can break through to higher prices. A rate hike either this September or November can be a catalyst for banks to ride a bull run as their earnings through net interest income would increase.

Therefore, the decline on last Friday is an opportunity for investors to buy the stock at the lower price, as it is poised to jump this year.

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