And then, there are some stocks nobody wants to touch and everyone seems to be afraid of, the financials... *Insert dramatic sound*
- 41 shares of Well Fargo & Company (WFC) @ $36.38
This purchase will add $41 to my annual dividend income.
I recently bought some WFC. I think the company is insanely undervalued. Warren Buffett pointed out in his shareholder letter a few days ago, Wells Fargo has profits understated by 10% due to certain accounting quirks.
Some rough numbers, Wells Fargo offers me:
- A 10% earnings yield (10 P/E)
- 8% projected EPS growth
- Credit rating: AA-
- low 20% payout ratio
- 2.75% dividend
A solid consumer staple I'd like to own someday, like Pepsi, offers me:
- A 5% earnings yield (20 P/E)
- 7% Projected EPS growth
- Credit rating: A
- Mid 50% pay out ratio
- 2.79% dividend
So basically, WFC offers me right now a double earnings yield, a higher EPS growth, a stronger balance sheet and basically the same dividend. On top of that, WFC has more room to boost dividend, repurchase shares and strengthen their balance sheet.
I really think there is a fear component to the valuation disconnect. People are still afraid of these scary financials, still shaking in there boots since the financial crisis. That just makes it better for me, picking up cheap shares for the long term. I just buy what is most attractively valued, and as of right now, I believe that financials are the way to go.
Thanks for reading.