Event: On Friday before the market opened, Wells Fargo (WFC) reported earnings for the quarter ending Sept. 30, 2012. The banking giant said it made 88 cents per share in the period. Analysts were expecting a profit of 87 cents per share. Total revenue came in at $21.2 billion, missing the analyst estimates of $21.47 billion. Part of the revenue miss comes from the decision of its mortgage lending unit to hold loans versus selling to Fannie Mae or Freddie Mac. That decision cost the bank some $200 million in fee income. Despite the good news on the earnings front, the market appears to be focusing on the revenue miss. Shares are down more than 3% in regular trading on Friday.
Analysis: Perhaps the market was looking for an excuse to sell Wells Fargo shares. The earnings report from the large bank was mostly positive. Yes, there was a revenue miss, but it missed by only a fraction and more importantly the miss was certainly explained away with the bank deciding to hold on to originated mortgages versus selling. Shares of Wells Fargo and other banks have appreciated strongly over the last year. Wells Fargo shares are up more than 30% in the last 52 weeks of trading. There are more gains to come. Like it or not, the Federal Reserve is determined to re-inflate the economy. Its QE Infinity program is a license to print money and profits at the large money center banks like Wells Fargo. I would use any selling in the stock as an opportunity to buy.
Action: Accumulate shares of Wells Fargo on today’s weakness. Shares are likely to gain up to 20% over the next 12 months.
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