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Turnaround Letter
Out-of-Favor Stocks with Real Value

January 12, 2024

In today’s note, we discuss the earnings reports from Wells Fargo (WFC). Please note that our comments on Well’s earnings didn’t make it into the podcast.

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In today’s note, we discuss the earnings reports from Wells Fargo (WFC). Please note that our comments on Well’s earnings didn’t make it into the podcast.

Comments On Earnings

Wells Fargo & Co. (WFC) – Wells Fargo is one of the nation’s largest banks. Under its previously weak leadership, the company never fully recovered from the 2009 financial crisis and its loose compliance culture led to a fake accounts scandal and other reputation-tarnishing problems. Also, like all banks, Wells is struggling with secular pressure on most of its profit drivers. The bank is further weighed down by regulatory costs including a cap on its asset size. Under CEO Charles Scharf, the bank is aggressively restructuring its operations, cost structure and regulatory compliance.

Wells reported a reasonable quarter that showed incremental net interest income pressure and higher credit costs, partly offset by controlled expenses aside from one-time costs like the FDIC special assessment. For the full year, Wells is making progress, as its return on equity increased to 11.0% from 7.8% in 2022. Wells’ capital remains strong and ticked higher to 11.4% CET1, even as it repurchased $2.4 billion of shares in the quarter. The bank has a lot of work ahead to hit its 15% sustained return on tangible capital (was 13.3% in the fourth after adjustments). The shares trade at about 121% of the updated tangible book value of $39.23. We are keeping our Buy rating on Wells shares.

The bank’s deposit base was stable with no incremental losses, but the mix continued to shift toward interest-bearing deposits and away from interest-free deposits. Loan growth remains elusive. These moves helped trim net interest income by 5% from a year ago and 3% from the third quarter. The net interest margin fell to 2.92% from 3.03% in the third quarter and 3.14% a year ago. Wells’ core business is making lower profits on differences in interest rates, although we have no insight into the effect of directly related fees, which are a hidden source of added margins, as it were.

Fee income rose from nearly all major buckets. After removing a variety of one-time costs, personnel and non-personnel expenses each rose 2% - we’d consider these “wins” given the bank’s added regulatory costs. For 2024, Wells provided expectations for another 2% decline in expenses.

Credit card numbers like volumes charged at point-of-sale and number of new accounts jumped, but we’re not convinced these are favorable trends. Money is a commodity and gaining market share can readily be equivalent to lower profitability. Curiously, automobile lending fell sharply.

Wells got more aggressive about charge-offs, perhaps clearing house for 2024. Charge-offs of $1.25 billion rose nearly 50% from the prior quarter and were more than double the year-ago amount. Loss reserves were essentially unchanged from the third quarter, as new provisions largely matched charge-offs. As a percent of total assets, reserves were a reasonably healthy 1.61%, up fractionally from the third quarter and up meaningfully from 1.42% a year ago. Non-performing assets increased fractionally, to 0.90% of total loans, compared to the third quarter.

In the quarter, revenues increased 2% and were in line with estimates. Adjusted earnings of $1.29/share fell 12% from a year ago but were 19% above estimates.

Friday, January 12, 2024, Subscribers-Only Podcast:

Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.

Today’s podcast is about 8 minutes and covers:

  • Comments on recommended companies
    • Walgreens (WBA) – Paying $360 million to settle a lawsuit
    • Bayer AG (BAYRY) – Leadership changes at crop science unit
    • Wells Fargo (WFC) – Pressing fight against Basel Endgame rules
    • Newell Brands (NWL) – Reorganization moves turnaround forward.
  • Elsewhere in the markets
    • Comments on SEC’s approval of Bitcoin ETFs
    • A few words on forecasting.
  • Final note
    • A few favorable comments on Michigan football (painful as it is to say them).

Market CapRecommendationSymbolRec. IssuePrice at Rec.Current Price *Current YieldRating and Price Target
Small capGannett CompanyGCIAug 20179.22 2.38 -Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 5.30 -Buy (20)
Small capDril-QuipDRQMay 202128.28 20.47 -Buy (44)
Small capL.B. FosterFSTRJul 202313.60 21.99 -Buy (44)
Small capKopin CorpKOPNAug 20232.03 2.26 -Buy (5)
Small capAmmo, Inc.POWWOct 20231.99 2.10 -Buy (3.50)
Mid capMattelMATMay 201528.43 18.29 -Buy (38)
Mid capAdient plcADNTOct 201839.77 33.64 -Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 16.076.2%Buy (33)
Mid capViatrisVTRSFeb 202117.43 12.074.0%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 41.15 -Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 23.033.5%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 12.057.8%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 39.100.7%Buy (93)
Mid capPolarisPIIFeb 2022105.78 88.622.9%Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 13.20 -Buy (24.50)
Mid capJanus Henderson GroupJHGJun 202227.17 29.055.4%Buy (67)
Mid capSix Flags EntertainmentSIXDec 202222.60 24.68 -Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 26.737.5%Buy (50)
Mid capFrontier Group HoldingsULCCApr 20239.49 5.25 -Buy (15)
Mid capAdvance Auto PartsAAPSep 202364.08 62.431.6%Buy (98)
Mid capMohawk IndustriesMHKJan 2024103.11 -Buy (165)
Large capGeneral ElectricGEJul 2007304.96 129.830.2%Buy (160)
Large capNokia CorporationNOKMar 20158.02 3.503.4%Buy (12)
Large capMacy’sMJul 201633.61 18.623.6%Buy (25)
Large capNewell BrandsNWLJun 201824.78 8.753.2%Buy (39)
Large capVodafone Group plcVODDec 201821.24 8.6111.8%Buy (32)
Large capBerkshire HathawayBRK.BApr 2020183.18 363.34 -HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 49.042.9%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 50.60 -Buy (78)
Large capElanco Animal HealthELANApr 202127.85 15.49 -Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 24.034.2%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 13.496.8%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 10.54 -Buy (20)
Large capCapital One FinancialCOFNov 202296.25 128.341.9%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 9.365.8%Buy (24)
Large capTyson FoodsTSNJun 202352.01 54.283.6%Buy (78)
Large capAgnico Eagle MinesAEMNov 202349.80 51.633.1%Buy (75)
Large capFidelity Natl Info ServicesFISDec 202355.50 62.303.3%Buy (85)

Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every Rated recommendation. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time. Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at or to our friendly customer support team at Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.