November 10, 2013 in Business

Motley Fool: Wells Fargo’s growth merits closer look

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Associated Press photo

Despite a third-quarter drop in revenue, the overall picture continues to look bright for Wells Fargo.
(Full-size photo)

Wells Fargo (NYSE: WFC) is one of America’s biggest banks and its largest mortgage lender. Recently sporting a dividend yield of about 2.9 percent and having hiked that payout aggressively in recent years, it warrants a closer look.

Wells Fargo recently posted its third-quarter results, and they featured record net income (up 14 percent over year-ago levels), a continuing increase in return on equity, and four businesses growing by double digits: credit cards, personal credit management, retail sales finance and retirement services. The bank’s credit quality has been improving, too, with total credit losses of $975 million vs. $2.4 billion a year ago. Wells Fargo has been quite successful in cross-selling, getting existing customers to sign up for new products or services.

Not everything in its last quarter was rosy, though. Revenue dropped by 4 percent, and mortgage originations dropped by 29 percent as interest rates rose. Rising rates have an upside, too, though, as they can increase a bank’s interest spread, as it charges its borrowers more.

Wells Fargo has a lot going for it and is poised to profit from our improving economy, benefiting from its diversified business lines and competitive strengths. (The Motley Fool owns shares of Wells Fargo and its newsletters have recommended it.)

Ask the Fool

Q: My husband and I hold mostly individual stocks in our IRA accounts, along with an international index fund. Does that make sense, or should we stick with just funds, and not individual stocks? – D.W., Dunkirk, N.Y.

A: It depends. Mutual funds (ideally ones with low fees and talented managers, or low-fee index funds) offer convenience and instant diversification. They can also expose you to industries or regions you don’t know very well, such as the international arena. Carefully selected individual stocks, meanwhile, can deliver bigger returns, but that’s far from guaranteed.

A nice compromise for many people is to park some or much of a portfolio’s assets in broad-market index funds, and then aim to juice that market-matching return with some managed mutual funds and/or stocks. Healthy and growing dividend-paying companies can be powerful contributors to a portfolio, and dynamic small-caps can come through for you, too.

Those without the time or interest to study and keep up with individual stocks should probably stick with funds. Learn more at fool.com/investing and morningstar.com.

Q: Why aren’t there any stock listings in my newspaper on Mondays? – H.K., Palmdale, Calif.

A: American stock markets are closed over the weekend, so there are no new stock movements to report. (Friday movements are generally published on Saturday.)

My dumbest investment

I saw a story on VIVUS on “60 Minutes” long ago and have watched this stock for eight years. I bought in early, around $4 per share, and sold around $9 per share. The late-stage clinical trial results for its weight-loss drug Qsymia were promising, so I bought back around $20 when the FDA approved Qsymia. But the shares have roughly dropped in half since then. Should I hold or sell? – A.G., online

The Fool responds: As with most stocks, opinions are divided on whether VIVUS is overvalued or a bargain. Qsymia has its fans, but it hasn’t been selling briskly, and its cost (about $150 monthly without insurance) is not yet reimbursed by most insurers. (Sales have improved as more retail pharmacies now carry it.) It presents some health risks, too. On top of that, there are competition concerns from the drug Belviq and other drugs in competitors’ pipelines.

Investors should make up their own minds about each of their holdings. Read more about VIVUS and see how rosy you think its future is, and how confident you are of that.

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