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Barron's is an American weekly newspaper published by Dow Jones & Company, a property of News Corp. that covers US financial information, market developments, and relevant statistics. Each issue provides a summary of the previous week's market activity as well as news reports and an informative outlook on the week to come. The Top 100 Independent Advisors as identified by Barron’s is published annually. Scoring for the publication reflects the assessment of data provided by the nation’s most productive advisors. Investment performance is not an explicit component because not all advisors have audited results and because performance figures often are influenced more by clients’ risk tolerance than by an advisor’s investment-picking ability. Barron’s states that ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors' practices. Furthermore that the scoring systems assigns a top score of 100 and rates the rest by comparing them with the top-ranked advisor. Anchor Capital did not provide data to Barron’s to be included in this assessment and receipt of this designation is no way indicative of any individual client or investor’s experience with the Company or of any client, investor or fund’s future performance. Anchor Capital is not affiliated with Barron’s in any way.

Wells Fargo & Company

WFC: NYSE

Wells Fargo & Company (WFC) was founded 1852 and is the third largest bank in terms of assets and the #1 bank lender in the United States. Its six-horse stagecoach corporate symbol has been in place since its origins as the secure deliverer of gold and other valuables. [1] Wells Fargo is the most U.S. focused of the nation’s four largest banks and has a national footprint. Through its emphasis on serving individuals and small and middle market businesses, Wells Fargo is the #1 originator of residential mortgages, the #3 auto lender, a leader in middle market relationships and #1 in small business lending. [2]

Investment thesis

Anchor has observed Wells Fargo successfully navigate through the last two major economic and financial downturns. We believe it has put behind itself the account opening scandal of 2016 and is now poised to generate consistent and above industry profit and dividend growth, which prior to the scandal had earned it a premium valuation and reputation from investors. Under Tim Sloan, the new CEO, we believe that the company has absorbed the onetime costs and has implemented the appropriate changes to its selling and employee practices. Despite very damaging headline news, we believe Wells Fargo’s loss of existing customers and employees has been minimal. Further, based on our analysis, because of its higher percentage of U.S. earnings compared to its large bank peers, Wells Fargo will realize greater earnings upside from both tax reform and a shift to higher interest rates on account of its high share of non-interest bearing deposits and exposure to variable rate lending.[3]

Confirmation through research

Researching the Company further, we concluded that there are other opportunities for Wells to outperform. At the most recent Investor Day, Wells Fargo announced $2B of incremental cost savings by year-end 2019. [4] Savings are expected to be generated through process automation, product rationalization and digitization efforts. [5] At the same time, the Company plans to continue to invest aggressively in technology and innovation, which we believe will allow it to deepen its relationships with the “iGen” (individuals born after 1995) and Millennial customer base, whose use of banking services is now online and mobile.

Cost savings combined with a resumption of customer and loan growth should in our opinion, result in Wells Fargo regaining industry leading returns on assets and equity. Because of its strong capital position and conservative lending, the Federal Reserve has allowed Wells to repurchase a meaningful number of shares, thus adding another increment to per share earnings growth in 2018 and 2019. Wells Fargo’s 2.8% yield is above the 2% generated by the S&P 500 and we believe its low payout of earnings will support an above stock market growth of dividends. [6]

Variant Perception

We feel that, as the company continues to execute on its retail sales remediation plan, new customer checking accounts and credit card applications will come back faster than expected by other investors. Our models suggest that Wells Fargo should continue to produce above average returns over the long term with tax reform and interest rate increases providing upside to our thesis.