The year hasn’t been kind to shareholders of Wells Fargo & Company (NYSE:WFC), ConocoPhillips (NYSE:COP), and CF Industries (NYSE:CF). Yet despite their struggles each company has mustered some positive developments in recent months that could help give their respective stocks a major boost heading into the new year.
Let’s take a closer look at these ‘comeback player of the year’ candidates.
Can Wells Fargo Perform in a Low Rate Environment?
Wells Fargo stock (-59% year-to-date) has sunk lower and lower as the year has progressed following a couple of big earnings misses in the first and second quarters. Historically low interest rates have weighed on net interest income and Wells has had to set aside a lot of money for loan loss provisions during the pandemic.
But while it may be hard to envision Wells Fargo and its big bank peers doing well in a low rate environment, the company has some encouraging catalysts that could spark a turnaround.
The mortgage banking business is an area of strength and could lead Wells Fargo out of the doldrums in 2021. Mortgage banking income has soared during the last two quarters amid a surge in residential mortgage originations. A U.S. housing market that appears to be heating up bodes well for Wells Fargo’s mortgage business.
Trading activity has also been a welcome contributor to recent performance. The pandemic has bred a new group of stock traders that will likely continue to trade heavily and provide income for Wells Fargo and other brokerage platforms.
Keep in mind, Wells Fargo generates roughly half of its revenue from non-interest income. As the economy continues to recover next year, things like credit and debit card, loan, and deposit related fees should all gradually improve.
Yet despite these pockets of strength Wells will likely face ongoing legal challenges. But this headwind should subside going forward as the company’s initiatives to enhance their compliance and risk management capabilities continue to gain traction.
Despite the tough year, Wells Fargo has maintained its dividend payment. This along with it’s a price-to-book ratio that is near its five-year low and well below that of its peer group, make Wells Fargo an intriguing value play for 2021.
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