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Is Wells Fargo & Co. (NYSE:WFC) the Most Undervalued Quality Stock to Buy Now?
We recently published a list of the 11 Most Undervalued Quality Stocks to Buy Now. In this article, we are going to take a look at where Wells Fargo & Co. (NYSE:WFC) stands against other undervalued quality stocks to buy now.
On February 24, Kayne Anderson Rudnick chief market strategist Julie Biel joined ‘The Exchange’ on CNBC to discuss her thoughts on how good quality companies can ride out turbulence in the market. Just like Warren Buffett and Charlie Munger, Biel also suggests inaction as an investment principle and believes that holding high-quality companies can help investors deal with market volatility. She emphasized conviction in investing instead of impulsive decision-making. Biel also noted the general resilience of the US economy, which mainly comes from a robust jobs market as it fuels the consumer-driven economy. She also expressed unease over the limited tools available to address a potential recession that could come from high levels of deficit spending. She thinks inefficient businesses should be allowed to fail while protecting employees during economic cycles.
Biel addressed small-cap stocks and explained that they struggle due to their higher leverage and sensitivity to prolonged higher interest rates. They often include significant exposure to real estate and banking sectors and have a high proportion of non-earning companies. She then emphasized that even if one were to invest in small caps, the ideal approach would be to look at high-quality small-cap companies that can yield strong results. Biel’s stock picks are quality companies that focus on tangible and physical solutions instead of those with foundations in hyped technologies like AI. While she acknowledged AI’s potential, she argued that it’s becoming standard and can no longer be categorized as a differentiator.
Our Methodology
We sifted through the Vanguard U.S. Quality Factor ETF holdings to compile a list of the top stocks that had a forward P/E ratio under 15 as of April 14. We then selected the 11 undervalued stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is Wells Fargo & Co. (NYSE:WFC) the Most Undervalued Quality Stock to Buy Now?
A team of bankers in suits, discussing the success of the company's banking products.
Wells Fargo & Co. (NYSE:WFC) is a financial services company. It has four segments: Consumer Banking & Lending, Commercial Banking, Corporate & Investment Banking, and Wealth & Investment Management. It also operates through financial advisors in brokerage and wealth offices, consumer bank branches, independent offices, and digitally through WellsTrade and Intuitive Investor.
The company’s revenue in the Consumer Small & Business Banking area fell by 2% year-over-year in 2024. This was attributed to higher deposit costs which shows that customers are shifting towards higher-yielding deposit products. However, deposit balances grew year-over-year and marked the first such increase since Q4 2022.
The company’s debit card spending remained strong and was up 4% year-over-year. The credit card business grew by 2% due to higher loan balances. Wells Fargo & Co. (NYSE:WFC) is now investing in refurbishing branches and enhancing digital and branch account opening experiences to improve customer experiences and drive new account growth. It’s also growing its card business with the help of investments that increase balances and spending.
Hotchkis & Wiley Large Cap Fundamental Value Fund stated the following regarding Wells Fargo & Company (NYSE:WFC) in its Q4 2024 investor letter:
“Wells Fargo & Company (NYSE:WFC) is one of the nation’s largest depositories and banks by assets. In addition to having a very high market share of deposits, they also enjoy high market share within the geographies they operate in such as western and southeastern US. In our opinion, WFC is one of the best franchises in banking with a history of very high returns on assets and equity. Performance over the quarter was strong due to potential deregulation with the onboarding of a new presidential regime and speculation that the company’s asset cap could be lifted as early as 1H25.”
Overall, WFC ranks 1st on our list of the most undervalued quality stocks to buy now. While we acknowledge the growth potential of WFC, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than WFC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
