Wells Fargo up 31%

If you were following my recent article on differences between standard bank accounts and individual stock ownership and followed my thesis of getting in on Wells Fargo at a stock price of $15 a share, your pockets would be quite happy with you right now.

First recommended on January 7, 2009 to buy in when wells hit on, or above $15 a share.

It reached that mark friday January 23, 2009 at $15.10 a share.

Since then the stock has traded sideways, up until today climbing over 30% on Washington's proposed stimulus package ending the day at $21.19.

Some say take profits, I would say... let it ride, bank stocks still have more upside momentum on their side with the chance for more liquid cash in the markets.

Trim your positions around the $27-$29 range.

GOLD DUE FOR A BOUNCE

Looking for save haven for your hard earned bucks? Now a days is not an easy task. One must measure and balance the risk vs the reward, my potential profit with my potential loss. Gold which has normally been a safe haven for investors in times of rising inflation, and high unemployment has barely budged in the wake of the recent government bailouts taking place in the financial sector. The government printing, and devaluing the dollar by the minute will only lead to high inflation down the road. What does this mean for you? Your purchasing power will be significantly impaired, too many dollars chasing fewer goods will lead to higher prices. Especially in commodities such as oil, and gold! Don't wind up like the summer of 2008 when gas prices were at $4 a barrel, and you could only hope for some relief at the pump, this time around, hedge against that situation and stock up on Gold, and Oil as a bet that prices will rise in the near term.

Todays closing price for gold is $908.80 per ounce according to www.bloomberg.com

Check out this video which supports my thesis:

http://www.ino.com/info/280/CD3564/&dp=0&l=0&campaignid=3

Bad Management leading to the Destruction of Good Companies

How does the largest bank in the world lose their entire market share? Going from number one, to among the ranks of Fannie Mae, and Freddie Mac, trading at $3 a share now, but soon to be in the dollar and CENTS collum. According to Dillan Ridigan from CNBC, Bad Management is the contributing cause.

So the saying remains true, the bigger they are the harder they fall, so what does that mean for the rest of the financial firms? Which companies are safe to invest in, and which ones are not. If the largest bank in the world goes under wouldn't one hold into account that other financial companies will follow in their footsteps, or at least be trading near Citi's stock price. WFC, BAC, JPM, PNC, where will these guys stand amid a further deterioration, and eroding of global economies. Citi (C) once trading at $26.40 a share at the beginning of 2008, to now struggling to hold on to $3.50 a share.

In my opinion some of these financial companies by mid year will be joining the ranks of AIG the worlds largest insurer, who received Government funds, and is now trading at $1.42 a share, and has not touched the $2 mark since December 3 2008.... despite the markets strong comeback rally's. Keep in mind this downward move occured rather quickly, so if you snooze you lose. AIG's stock went from $22.76 on September 8, 2008 to $2.05 a share September 17, 2008. 9 DAYS!! Bank stocks have been down big the past 5!!! Stay tuned...

Standard Bank Accounts compared to Individual Stock Ownership!

Have you checked with your bank lately and asked what is the going rate for depositing your cash in an interest bearing account? I have, on a money market I was quoted 0.05% with a minimum balance of $3500, and on a regular savings account I was quoted 0.05% as well. Take that same initial $3500 and times it by 0.05 and you get $175 worth of interest, add that to your initial deposit, and you have a total of $3675 annually. Not Bad...Save comfortable, and low management knowledge... correct?

Let's say for instance you wanted to invest in an individual stock for the purposes of matching, if not surpassing your yield of 0.05 from the bank. Remember when investing in stocks solely for dividend yields one must be extremely sure that the company will pay those dividends to its shareholders. Looking for the well established names/household names, because you know these companies are here for the long run. Using the same scenario as above, If I were to take that same amount of money and purchase shares of stock from say Wells Fargo offering a Dividend Yield 1.36 or 4.8% annually. The closing price today for a share of wells fargo stock is $25.96, divide the $3500 you have to spend by the share price, and you will recieve 134.82 shares of stock. Wells Fargo's dividend per share is $1.36 times that by the number of shares you have (134.82)= $183.36, add that to your initial deposit, and you have a total of $3683.36 based on the stock staying at this exact price for a year. A whooping $8 more annually which includes more risk, and time for maintenance.

Share prices fluctuate on a daily basis and giving the recent economic turmoil for the coming year, and the diminished ability for banks to secure cash, keep current assets from rapidly losing value, and their diminshed ability to lend money to distressed companies in need, I would say Wells Fargo will be declining in price. Taking a look at historical trends in the stock

June 7, 2008 $23.75 a share

Sept 15, 2008 $39.80 a share

Nov 17, 2008 $21.76 a share

January 6, 2009 $25.96 a share

The last time Wells Fargo was below $20 a share was May 1999. Ten years ago...

I would buy wells fargo on a range of $19-$21 a share and hold it purely for the dividend, keep in mind the dividend yield will rise in the event a stock goes down in price. Here is an example, taking that same $3500 investment, and dividing it by $21 gives you 166.67 shares. Just to be on the safe, hypothetical side using the current dividend yield of 1.36 x 166.67 shares you arrive at $226.67, add that to your initial investment and you have grossed $3726.67. That is $51.76 more annually than a standard bank account, but there is potential for an upswing, and more money in your pocket if the stock price goes up.


My advice is if you have $3500 in cash and are wondering what to do with it, I would say stay on the sidelines for now, and if Wells Fargo goes to $15-$20 a share after it releases earnings January 28, 2009 I would buy in and let that spectacular dividend pay you a hefty return on your money.