Should You Avoid Wells Fargo & Co (WFC)?

Wells Fargo & Co (NYSE:WFC) has the best mortgage business in the U.S. banking world, but recent layoffs have worried some traders and longer-term shareholders. Is it worth avoiding the bank, and is that what some hedge funds are doing?

In today’s marketplace, there are plenty of methods shareholders can use to analyze publicly traded companies. A duo of the most underrated are hedge fund and insider trading activity. At Insider Monkey, our studies have shown that, historically, those who follow the best picks of the top fund managers can beat the S&P 500 by a solid amount (see just how much).

Equally as necessary, positive insider trading activity is another way to analyze the marketplace. As the old adage goes: there are plenty of reasons for a corporate insider to downsize shares of his or her company, but only one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the useful potential of this method if piggybackers know where to look (learn more here).

Now that that’s out of the way, we’re going to examine the newest info for Wells Fargo & Co (NYSE:WFC).

Hedge fund activity in Wells Fargo & Co (NYSE:WFC)

At Q2’s end, a total of 76 of the hedge funds we track were bullish in this stock, a change of -3% from one quarter earlier. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably.

Out of the hedge funds we follow, Warren Buffett’s Berkshire Hathaway had the biggest position in Wells Fargo & Co (NYSE:WFC), worth close to $19.1134 billion, comprising 21.5% of its total 13F portfolio. Coming in second is Natixis Global Asset Management of Harris Associates, with a $1.2266 billion position; 2.6% of its 13F portfolio is allocated to the stock. Other hedgies with similar optimism include Ken Fisher’s Fisher Asset Management, Tom Russo’s Gardner Russo & Gardner and Paul Ruddock and Steve Heinz’s Lansdowne Partners.

As Wells Fargo & Co (NYSE:WFC) has experienced dropping sentiment from the top-tier hedge fund industry, logic holds that there is a sect of fund managers who were dropping their full holdings at the end of the second quarter. Intriguingly, Bruce J. Richards and Louis Hanover’s Marathon Asset Management dumped the biggest investment of the “upper crust” of funds we track, totaling an estimated $144.3 million in stock, and John Paulson of Paulson & Co was right behind this move, as the fund sold off about $129.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds at the end of the second quarter.

What have insiders been doing with Wells Fargo & Co (NYSE:WFC)?

Legal insider trading, particularly when it’s bullish, is at its handiest when the company in focus has experienced transactions within the past six months. Over the latest 180-day time frame, Wells Fargo & Co (NYSE:WFC) has seen zero unique insiders buying, and 10 insider sales (see the details of insider trades here).

We’ll also examine the relationship between both of these indicators in other stocks similar to Wells Fargo & Co (NYSE:WFC). These stocks are Toronto-Dominion Bank (USA) (NYSE:TD), Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU), Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM). This group of stocks belong to the money center banks industry and their market caps match WFC’s market cap.

Using the results explained by the previously mentioned analyses, regular investors must always pay attention to hedge fund and insider trading activity, and Wells Fargo & Co (NYSE:WFC) shareholders fit into this picture quite nicely.

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