For more than a decade, growth stocks have been virtually unstoppable. Historically low lending rates have allowed companies to aggressively borrow in order to hire, innovate, and acquire other businesses. But it might be time for value stocks to shine.
Back in 2016, Bank of America/Merrill Lynch released a report that examined the performance of growth stocks and value stocks over 90 years (1926-2015). The data showed that value stocks outperformed over the very long run (17% vs. 12.6%). What’s more, value stocks have tended to perform much better than growth stocks during the early stages of a bull market, which is where we are now.
If you’re looking for bargains to add to your portfolio in February that have all the tools needed to make you richer, consider the following three value stocks.
The idea of buying bank stocks right now probably doesn’t sound palatable. The Federal Reserve has plans to keep its federal funds target rate at or near historical lows through 2023. The central bank is also buying Treasury bonds on a monthly basis in an attempt to drive down yields. This means weaker net interest income for banks at a time when loan delinquencies are on the rise.
But the funny thing about investing in bank stocks is that it’s usually a smart idea to buy when things look the grimmest. That’s why bruised and battered money-center bank Wells Fargo (NYSE:WFC) is worth adding to your portfolio.
Typically, cheap stocks are cheap for a reason, and Wells Fargo definitely has its flaws. The company is working its way back from a scandal in which 3.5 million unauthorized customer accounts were opened between 2009 and 2016. The company has since instituted more stringent oversight at the branch level and brought in former Visa CEO Charles Scharf to take the reins.
What’s tended to separate Wells Fargo from a crowded banking industry over the years is its knack for attracting affluent clientele. Wealthier customers are less likely to be disrupted by economic contractions, and they’re more likely to take advantage of multiple financial services offered by Wells Fargo, such as mortgage servicing and wealth management. Continuing to bring in these well-to-do clients will help Wells Fargo deliver superior return on assets.
Wells Fargo has also been investing heavily in digitization. Since it’s considerably cheaper to serve its customers online or through its mobile app, the company has been able to consolidate some of its branches to reduce its noninterest expenses. It ended 2020 with 32 million customers banking digitally.
Patient investors who want to own a quality bank stock can buy Wells Fargo right now for a 25% discount to its book value.
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