(Note: The writer of this fundamental analysis is a portfolio manager and financial writer.)
The stock of Wells Fargo & Co. (WFC) has lost 20% of its value from its 2018 high, in part due to a slew of controversies within the bank. Currently, option traders are placing bets that the stock will decline 8% further by the beginning of 2019 to its lowest level since September of 2017.
technical examination directionally supports this pessimistic viewpoint, which is also supported by analysts who anticipate little revenue growth over the next two years.
WFC data by YCharts
With 79,000 outstanding puts, the put options at the $52.50 strike price that expire on January 18 exceed the bullish call bets by a factor of three. Additionally, there has been an increase in open interest for the puts with a $50 strike price. A buyer of such puts would need the stock to decline from its current price of $53.28 to $49.10 in order to benefit.
Weak Technical Charts
The stock, which is in a downward trend and striking resistance, is positioned above support at $52.40, according to the chart. The stock is expected to plummet back to its low around $50 if it breaches that support level. Additionally, the relative strength index has been moving downward.
The unfavorable mood is a reflection of the company’s expected sluggish revenue growth over the next two years. Currently, analysts predict that sales will drop 1% in 2019 and barely increase by 2% in 2020. Since the end of July, experts have, however, cut their revenue projections by around 1%.
Data from YCharts for WFC Revenue Estimates for the Current Fiscal Year
Analyst predictions of 18% profit growth in 2019 are not as reliable as they seem. That’s as a result of the recent fall in profit projections for 2018.
Investors’ concerns about a flat yield curve and its possible effects on interest revenue have negatively impacted Wells Fargo and the banking industry as a whole in 2018. Additionally, many of the major banks’ loan growth has slowed as a result of increasing interest rates. The stock of Wells Fargo is probably going to decline as long as these overhangs are on the company.
The owner and manager of the actively managed, long-only Thematic Growth Portfolio atMott Capital Management LLC, a registered investment advisor, is Michael Kramer. Kramer often invests in equities and retains them for three to five years. For more on Kramer’s background and assets, go here. The information provided is only for educational reasons and is not meant to be a solicitation or an offer to buy or sell any particular securities, investments, or financial strategies. Unless otherwise noted, investments entail risk and cannot be guaranteed. Before putting any of the strategies described here into action, be sure to speak with a skilled financial advisor and/or tax expert first. The adviser will offer a list of all suggestions made in the previous year upon request. Performance in the past does not guarantee performance in the future.
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