I was reading one of my favorite blogs that I just only recently discovered called Brooklyn Investor. He does a great job at doing thorough analysis on companies, and some of the posts are good case studies to learn from.
He had a couple posts last week on Wells Fargo (WFC), which I found interesting. Of course, WFC is one of the top 4 largest banks in the country, and with a market cap just shy of $200 Billion, it’s not exactly off the radar. However, as Charlie Munger pointed out once, even mega cap companies can be priced inefficiently from time to time. WFC is a well run bank with a storied history going back 150 years or more, plus Buffett continues to buy it even at recent prices, so it’s worth keeping an eye on.
In fact, WFC is a stock that has interested me for the past 4 years or so. I remember in late 2008/early 2009 Buffett making the comment (when WFC was trading at $7) that he would put all of his net worth into WFC if he could. Now, 400% later, we know why… But even at $35 (current price), is WFC a buy? Brooklyn Investor makes the case that it might still be undervalued. Read both of his pieces for much more detail.
The thing that I found most interesting is how well (no pun) Wells Fargo has compounded their book value over time. As I’ve mentioned before, growth of book value is one of the most reliable ways to measure the quality of a company. Growing book values over time always leads to growing stock prices over time. The key of course is to figure out if the growth in book value will continue and to not overpay for that growth.
But check out WFC’s book value per share growth over the past 10 years (Value Line has more info, but this table is thanks to Brooklyn Investor):
- 2001 $8.00
- 2002 $8.98
- 2003 $10.15
- 2004 $11.17
- 2005 $12.12
- 2006 $13.58
- 2007 $14.45
- 2008 $16.15
- 2009 $20.03
- 2010 $22.49
- 2011 $24.64
- 2012 $27.64
Wow! (That was my first thought when I saw that table). I knew WFC had compounded its net worth over time, but that is a decade of steady growth year after year without a single year of negative book value per share growth… and this is of course during one of the most volatile decades for banks since the 1930’s.
The above book value per share growth equals about 14% per year over the past decade. That’s without dividends. If you add in dividends, it’s about 17% per year.
Brooklyn Investor goes on to discuss what he thinks WFC is worth, why he thinks Buffett continues to buy the stock. There are other really good points relating to ROE, ROA, and the relationship those metrics have to the intrinsic value of the company.
I wanted to point out the book value growth, but check out both of the posts for more details. Wells Fargo is a great company, what I call a “Compounder”. It might not be the cheapest bank, but it’s worth keeping on a watchlist of great companies.
Disclosure: No position in WFC.