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Avoid WFC Ahead of Earnings – And After!

Oct 06, 2017


Wells Fargo (WFC) has been in the headlines a lot this year – far too much for most of the large financial institution’s investors. Scandals have rocked both the company and its shares, and it has definitely shown in the stock’s performance.

WFC is flat year to date, which doesn’t seem terrible at first glance.  But compare that to the fact that the Financial Select Sector SPDR ETF (XLF) is up 12.5% in the same time and sitting at a fresh nine-year high and the stock turns into a disappointment.

Investors have set their sights on the bank’s next quarterly report scheduled for the morning of Friday, October 13. (Could that date be an omen?) The Street is looking for earnings of $1.04 a share on revenue around $22.4 billion.

WFC hit a yearly low last month, but since then the shares have rebounded as value investors look at the big picture and hope that the company will be able to get past the negative headlines. That’s a risky bet ahead of earnings, though. If another bombshell is dropped, it could easily send the stock back down to its lows.

Not Enough Reward to Outweigh the Risk

Those investors who have been buying over the last month should already have logged nice gains with WFC up 11% from its worst levels, but from here I suspect the near-term upside is limited for two reasons.

First, the upcoming earnings report represents a lot of downside risk. And even if the report does hit or beat estimates, we could still see the shares sell-off as a result of “buy the rumors, sell the news.”

The second reason is the chart. As you can see below, Wells Fargo has significant price resistance around $56 (the black line). With the stock trading just below that level now, that could put a lid on any near-term or post-earnings momentum.

Because of all of that, I am not a buyer of WFC ahead of earnings. And unless something dramatically changes as a result of the report, I will remain on the sidelines here. There is just too much risk right now, not to mention a lot of better options within the financial sector.

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