We recently compiled a list of the 7 Best American Bank Stocks To Buy According to Hedge Funds. In this article, we will look at where Wells Fargo & Company (NYSE:WFC) stands against the other American bank stocks.
According to the Labor Department’s Bureau of Labor Statistics, August marked a 142,000 increase in nonfarm payrolls, up from 89,000 in July but less than the 161,000 predicted by most analysts. As anticipated, the jobless rate dropped slightly by 4.2%. However, the “real” unemployment rate increased to 7.9%, the highest level since October 2021. Moreover, the average hourly wage grew by 3.8% over the previous year and by 0.4% over the previous month, exceeding the predicted increases by 3.7% and 0.3%.
Nonetheless, the U.S. market for digital banking platforms is growing rapidly, and it was estimated at $1.04 billion in 2024 and is projected to grow at a CAGR of 9.63% to reach $2.04 billion by 2031, according to Verified Market Research. Per the research, it is expanding due to a number of factors, including shifting customer preferences, the rise of mobile banking, technological advancements, and the need for customization.
On the other hand, according to the Research and Markets, the US retail banking market is expected to expand by $91.47 billion between 2023 and 2028, with a CAGR of 4.35% during that forecast period. The industry is being pushed by the further digital transformation of retail banking, the expansion of fintech company partnerships, and the increased emphasis on financial inclusion per the research.
In the United States, the average bank account balance increased from $5,300 in 2019 to $8,000 in 2022. In 2022, the median balance was $62,500, a 29% increase from 2019 as per the Forbes survey. The Federal Reserve’s Survey of Consumer Finances indicates that 98.2% of American families own a transaction account of some kind. As per the Federal Reserve: Economic Well-Being of U.S. Households in 2021, the percentage of people without banks is 6%, up 1% from 2020 to 2021. As of 2022, 78% of consumers preferred smartphone applications or websites over traditional in-person banking, revealing the dominance of digital banking according to the Forbes Advisor: 2022 Digital Banking Survey. For 57% of Americans, debit cards are their preferred mode of payment per the Forbes 2023 Banking Survey, and even though rates are likely to rise, only 48% of people have opened a certificate of deposit (CD) as per the survey.
According to the US Bank Market Report 2024, U.S. bank earnings are expected to fall 2.8% year on year, discounting gains from unsuccessful bank acquisitions in 2023. Pressure on net interest margins and rising credit costs are the causes behind this decline. As banks acknowledge losses on their commercial real estate portfolios and accumulate reserves, higher loan costs are expected. In 2025 and 2026, earnings are anticipated to grow despite these obstacles as loan loss provisions decline and profitability increases.
Looking forward, Deloitte’s “2024 banking and capital markets outlook” outlines that, amidst a volatile global economy, the banking and capital markets industry will confront significant challenges in 2024. The industry is changing as a result of tighter rules, rising interest rates, and a declining money supply. Digital identity and generative AI are two examples of how quickly advancing technology will change how banks function and provide for their customers.
Banks need to adapt to modest organic growth and discover new revenue streams even with a strong base. The increase in private capital is one of the rising competitive forces that trading and investment banking will need to adjust to. In addition, the industry is reevaluating its tactics in light of evolving business models and recent regulatory changes.
Methodology:
We sifted through holdings of bank ETFs and online rankings to form an initial list of 20 American bank stocks. Then we selected the 7 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 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 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A team of bankers in suits, discussing the success of the company’s banking products.
Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Investors: 83
Currently ranked as the fourth-largest bank in the United States, Wells Fargo was established in 1852. It operates in 35 countries around the globe and provides a wide range of financial services and products. The US-based financial firm offers personalized help from financial advisors along with an abundance of resources for financial education.
Wells Fargo & Company (NYSE:WFC) beat consensus projections for both the top and bottom lines in its second-quarter 2024 earnings. However, the company’s net interest income, a crucial metric for banks, underperformed, and it has been declining every quarter since Q4 2022. The bank’s net interest income, which is calculated as the difference between interest revenue received from loans and interest expenses, decreased by 9% year over year and is currently expected to shrink by 8-9% this year.
Under Scharf, one of the “Best Financial Services Stocks To Buy Now” has bolstered its trading and investment banking capabilities by bringing on board a few senior executives from rival companies. Wells Fargo’s investment banking income climbed by 38% to $430 million YoY in the second quarter of 2024.
Despite its growth, the company remains limited by a $1.95 trillion asset cap and ongoing regulatory scrutiny.
As part of the investor “bull thesis” going into the quarter, analysts projected better net interest income; hence, management’s revised view for NII is expected to put pressure on the stock, according to Citigroup analyst Keith Horowitz in a note.
Wells Fargo & Company (NYSE:WFC) plans to maintain its multi-year restructuring plan, putting an asset cap in place until 2024 and concentrating on cost-cutting measures to boost its efficiency ratio. The bank is also reconstructing its card business, middle-market investment banking, and wealth section.
Overall WFC ranks 4th on our list of the best American bank stocks to buy according to hedge funds. While we acknowledge the potential of WFC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.
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Disclosure: None. This article is originally published at Insider Monkey.