October 12, 2015

Selling Wells Fargo shares high valuation

I've previously sold the trading portions of my money-center-bank positions while maintaining my core investment holdings in the group.

Well, in light of my negative market view and recent sale of select financials (Oaktree Capital , Goldman Sachs, Morgan Stanley, etc.), I'm making a sacrifice to the bank gods and selling my entire Wells Fargo  stake.


WFC's valuation is high relative to the group, and I believe its earnings are exposed to disappointment relative to consensus over the next year if the U.S. housing market contracts (as I expect.)

Moreover, persistent low rates disfavor any real recovery in net interest and net income at banks like Wells Fargo, which have large imbalances of rate-sensitive assets vs. rate-sensitive liabilities.

As a result, I expect WFC's year-over-year earnings-per-share growth for 2016 vs. 2015 to hit the low single digits in percentage terms, below the +7% to +8% consensus.

That said, I expect to continue to hold onto my other core money-center and regional-bank stocks. Indeed, I'll buy more Bank of America, Citigroup or JPMorgan Chase on any drops of 5% or so.


Position: Long BAC, FITB, FMER, RF, C, MSL, SONA, EFSC, STL, MBFI, JPM, BBT


http://www.thestreet.com/story/13319460/1/ebay-wells-fargo-and-general-motors-doug-kass-views.html

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