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Wells Fargo Still Looks Cheap

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While most banks tend to fall in within the same category and thus appraised on similar standards and metrics, Wells Fargo (WFC) has always strive to be a cut above the likes of Bank of America (BAC) and Citigroup (C).

The bank recently announced plans to raise its dividend, while also increasing its stock buyback program.

The financial giant will raise its quarterly dividend from 25 cents to 30 cents per share, which will be paid in the second quarter. CEO and chairman, John Stumpf commented, “we are extremely pleased to be able to reward our shareholders with increased distributions for 2013.”

“Today’s decision by the Federal Reserve Board not to object to our 2013 Capital Plan allows us to further increase our common stock dividend in 2013 and to undertake repurchase activity to return more capital to our shareholders. Our ability to do this is a testament to our diversified business model, which has allowed us to serve more customers and continue to grow capital while at the same time generating record earnings and providing our shareholders with more return on their investment.”

Among the large high-quality banks, Wells Fargo was among the leaders in stock price performance in 2012. Even so, the company's recent performance supports higher share gains as this year progresses. Given that the stock is trading at $36 today, a case can be made that the stock has (at least) 15% more upside from here.

If Wells Fargo can produce return-on-equity in the low-to-mid teens (10% to 15%), this stock should command a long-term fair value of (at least) 442 per share, which is a pretty decent return. However, though, there will be volatility, given the flat yield curve and competition in the mortgage market.

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Stock Tickers: WFC BAC Author Disclosure: At the time of publication, Richard held no positions in any of the stocks mentioned.
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