Jim Cramer talks about buying Wells Fargo stock to benefit from Fed rate hike
CNBC’s Jim Cramer on Monday advised investors to add Wells Fargo to their shopping lists.
“Wells Fargo currently leads the group in terms of net interest margin and their multi-year recovery plan is finally paying off… This is by far my favorite name in this new leader group,” he said.
The bank beat Wall Street’s earnings and revenue expectations in the third quarter, although its earnings were hurt by a decision to increase provisions for possible loan losses. Cramer said the most important part of the bank’s quarterly results was its net interest margin, which is the difference between what they pay on customer deposits and the return it earns on its investments.
The money Wells Fargo is making from this spread, known as net interest income, has “significantly exceeded” expectations, Cramer said. Earlier this year, the bank said it expects net interest income to grow by 8% from 2021, and raised that forecast to 24% on Friday.
“These guys are printing money because of the higher yield curve,” he said.
Cramer added that Wells Fargo’s net interest margin is better than that of its peers, whose quarterly numbers he also summed up on Friday. Adding to his bullish case for the bank are its effective cost controls, lack of access to capital markets, and its new M&A business.
He noted that while he is bullish on the stock, investors should remember that the Federal Reserve initiated an asset cap on Wells Fargo in 2018, which limited the bank’s ability to grow.
“While there is a possibility that the restriction will be lifted next year… we have no idea when this will happen, so I would not include it in your calculations,” he said.
Disclaimer: Cramer’s Charitable Trust holds stock in Wells Fargo.