Wells Fargo’s stock is a ‘classic value trap,’ strategist warns


Betting on Wells Fargo might not be a safe bet, according to one strategist.

The stock caught Wall Street’s attention Thursday following the company’s announcement that CEO Tim Sloan was retiring effective immediately. Shares initially surged on the news in after-hours trading before reversing and shedding over 1.5 percent in Friday’s session.

But even these lows aren’t enough to make Joule Financial founder and investment chief Quint Tatro get bullish on Wells Fargo.

“If you want to own a stock like this for the dividend, I think that’s fine, but if you’re looking for any sort of capital appreciation or upward bias over the next year or so, I think you’re going to be sadly mistaken. It’s a classic value trap,” Tatro said Friday on CNBC’s “Trading Nation.”

Some fundamentalists will argue that Wells Fargo is indeed a safe bet that gives investors a “decent return on assets” and pays out roughly $7 a share, but its problems may outweigh its benefits, Tatro argued.

“The problem is, obviously, they have a major public issue. They lost all trust,” he said. “With Tim Sloan gone, I think that’s a positive, but they’ve got to bring somebody in who’s going to innovate. Fifty percent of the business is community banking. That’s being disrupted before our eyes. About 20 percent is wealth management; also being disrupted. So their major segments are in areas that they’ve lost confidence in, and they’re going to see continued decrease in margins because their industries are totally being disrupted and they’re not doing a thing about it.”

TradingAnalysis.com founder Todd Gordon admitted he wasn’t quite as bearish, noting that Wells Fargo shares have been in an uptrend for the better part of a decade.

“If you look at … the map of where we’ve been post-2009, it’s traced a very nice parallel channel here,” Gordon said in the same “Trading Nation” interview. “We’ve not quite broken that uptrend that’s been in play for nine years now.”

Still, he couldn’t completely discount Tatro’s argument that Wells Fargo isn’t exactly the cream of the crop in the financial sector.

“I agree with Quint; there is value in other names,” Gordon said. “I hold J.P. Morgan. I hold Bank of America in my portfolio. I don’t hold Wells Fargo.”

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