Wells Fargo: A Warren Buffett-Approved Buy

This article published with permission from InvestmentU.com.

When the U.S. markets crashed in 2008, banks bore the brunt of the blame. Easy scapegoats, they were accused of over-inflating the housing bubble, a perception — both legitimate and unjustified at the same time — that earned them lasting grief.
Financial companies like American International Group (NYSE: AIG) and Bank of America (NYSE: BAC) had their names smeared in newspapers all across the country and even the world. Certain activist groups went so far as to camp outside of bank executives’ private homes, intimidating their families and even issuing death threats.
Meanwhile, those businesses suffered in the markets as investors learned just how foolish many of their decisions over the years had really been. Stock prices plunged and some — like Fannie Mae — never recovered at all.
Even when the larger U.S. markets rebounded promisingly in 2009, the banking sector continued to perform poorly. According to CNBC, out of the S&P 500’s 10 distinct sectors, financials performed the worst in 2011, “with banks in particular tumbling nearly 25% as measured by the KBW Bank Index.”
Admittedly, so far this year, the sector is running in second. Yet that hardly makes now the time to be picking up just any old financial stock.
Those companies are still fragile, as evidenced by German regulator BaFin’s new probe into Deutsche Bank (NYSE: DB), a significantly sized player in the international scene.
And earlier this month, in an effort to inspire public trust, some of its American competitors were busy marketing themselves as easily dismantled. In essence, they were saying that, should something bad happen later down the road, they could be downsized with minimal hassle — hardly a grand note of confidence.
Still, there is one company out there that’s worth a second look, at least according to legendary trader Warren Buffett. He’s given big U.S. bank Wells Fargo (NYSE: WFC) a second, third and fourth look over the years.
And every time he looks, he still likes what he sees.
Warren Buffett and Wells Fargo go way back
Wells Fargo first caught Warren Buffett’s eye over two decades ago.
In 1990, he made an initial venture into the company through his wildly successful investment management business, Berkshire Hathaway (NYSE: BRK-A). That first year, he acquired some five million shares for $289 million and since 2005 he’s added to that position every year.
Five years into the new century, he purchased an additional 38.7 million shares. In 2006, it was 28 million shares, then 85.2 million in 2007 and so on until the beginning of 2012, when he bought up an additional 10.6 million.
Even during 2008, when banks were at their worse, Buffett still added another one million shares … while everybody else was dropping financials like hot potatoes.
All told, that makes Wells Fargo Berkshire Hathaway’s second-largest investment. And Buffett seems perfectly content with that status quo according to the positive comments he’s made in the recent past.
What’s not to like?
The truth is that Wells Fargo is solid with a strong business history that has shaped it into the company it is today … a company that even somebody as prestigious and well-connected as Buffett can appreciate.
Dating back to 1852, today it offers banking, insurance, investment, mortgage and financing options. Thanks in part to its 2008 acquisition of the recession-ravaged Wachovia, Wells Fargo has over 9,000 stores and 12,000 ATMs throughout the United States and abroad, and allegedly “serves one in every three households in America.”
That isn’t very hard to believe considering that, with $1.3 trillion in assets, it’s the United States’ fourth-largest bank and the third-largest U.S. retail brokerage firm.
The company has a positive rapport with its customers, even previous Wachovia customers, who reportedly found the transfer as stress free as possible. And it offers worthwhile perks to its investors as well, including dividends, which it has faithfully paid out every quarter since 1996 — the last of which amounted to $0.22.
Wells Fargo’s next earnings report is scheduled for July 13, with analyst EPS (earnings per share) expectations set at $0.81. And since the financials matched predictions two quarters ago and beat them the last time around, hopes are high that it will do just as well on Friday.
Warren Buffett certainly doesn’t seem nervous about the upcoming report. And that’s reason enough to consider that Wells Fargo might be a worthwhile addition to anybody else’s portfolio as well.
Jeannette Di Louie is a member of the research team at InvestmentU.com. See more articles by Jeannette here.