The following content is not a personal recommendation to buy shares in the companies listed as I am not taking your personal financial situation into account.

I just accumulated more of this company using just $5000. It’s up 21% in 11 days.

The United States has been the #1 trade in financial markets over the past 120 years and recently between April and November 2020 quality companies listed on the S&P 500 have once again shown their reliance and reliability for investors with the Index rebounding 56% in 8 months.

Whilst the S&P 500 has recovered all of its losses from the March 36% decline there are still some wonderful businesses that are trading below what we call fair value. This is when a company’s price is trading substantially lower than it ordinarily would and the potential upside is significant.

Recently I bought $5000 worth of US banking giant Wells Fargo at a price of $24.90 a discount of around 50% from where it was trading at the beginning of 2020 prior to the pandemic. In fact, banks listed on the share market around the world declined in value in a big way due to three factors. 

  1. Credit risk increasing significantly.
  2. Banks were asked to conserve cash and reduce or not pay dividends.
  3. Interest rates are at 0% globally and banks make less money when rates are lower. 

We are now only weeks away from a vaccine and financial markets are very quickly pricing in higher economic output in 2021 and 2022 and many of the companies that have been out of favour with traders are now starting to be bought. 

Wells Fargo on 15th February 2020 was trading at $48.00 and through the pandemic fell to a low of $20.76. In December 2019 Wells Fargo was trading at $54.75 approximately 120% higher than its recently traded price of $24.00.

Wells Fargo is the fourth largest bank in the USA with over 70 million customers and is trading well under what I consider to be fair value. Even if the price of Wells Fargo took 5 to return to its February 2020 level of $48 it would mean I would still earn approximately 100% return on my investment plus any dividends I reinvest along the way. An average of 20%+ per year.

Prior to the financial crisis in 2008 Wells Fargo was trading at around $33 and hit a low of $7.80 on 1st March 2009. It was trading back at $33 a rise of over 300% just 13 months later on 19th April 2010. A great sign this company has resilience. 

I am constantly teaching our traders at Trading Mastery to look for opportunities that have a large margin of safety. What I am referring to is the potential upside vs the potential downside over time. My analysis is that Well Fargo has solid upside potential and a history of bouncing back following a crisis. Whilst there is potential downside risk, I believe the upside potential will likely win over time.

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