My Favorite Stock Right Now – With a 6.4% Yield!
Chief Income Strategist Marc Lichtenfeld reveals the best stock to buy in 2020. He explains how this pick can lead investors to solid gains. But he also shows why you shouldn’t always listen to Wall Street.
I am often asked what my favorite stock is…
It’s a tough question to answer because there are a lot of variables to consider, including how much risk an investor can handle. But when I look at the market, one stock has emerged as the best stock to buy in 2020, and it will probably surprise you.
Wall Street absolutely hates the stock. Of the 27 analysts on the Street who cover it, only four rate it a “Buy.” That’s actually a positive sign…
One thing you should know about me is that I don’t care what Wall Street thinks. Early in my career, I was trained by one of Wall Street’s most contrarian (not to mention smartest and most successful) research directors. He taught me to question everything.
I learned that when Wall Street leans heavily in one direction, I should be seriously thinking about going the opposite way.
That’s how I’ve been able to score the biggest wins in my career, like a 2,381% gain in AbbVie (NYSE: ABBV) a few years ago when everyone on Wall Street believed the drug company was a has-been because its biggest-selling drug might’ve faced generic competition.
I more than quadrupled readers’ money in Texas Instruments (Nasdaq: TXN) when I recommended the stock despite semiconductor stocks having been stuck in neutral for nine years. They started shooting higher almost immediately after. And I tripled subscribers’ money in Raytheon (NYSE: RTX) at a time when no one wanted to touch defense contractors due to the federal budget sequestration.
My current favorite stock has a 6.4% yield and is the best stock to buy in its beaten-up sector…
I’m talking about Wells Fargo (NYSE: WFC).
Why Wells Fargo is the Best Stock to Buy in 2020
Unfortunately for Wells Fargo, the first thing many people think of when they think of the company is the scandal from a few years ago where Wells Fargo opened accounts for customers without their knowledge.
However, the company has new management now, including a highly respected CEO, Charlie Scharf. Additionally, though the scandal hurt Wells Fargo’s reputation, it did not impact its business much at all. The company has always managed its books prudently. During the Great Recession, it was the only large bank that didn’t need a bailout.
Additionally, it’s not a big player in investment banking or speculative trading, so it doesn’t suffer the boom-and-bust cycles that other well-known banks do. The company has more than 7,400 locations and 70 million customers in 31 countries, and it is one of the top issuers of debit and credit cards in the United States.
The stock trades at just 0.81 times book value compared with an average of 1.18 for its peers. That means that Wells Fargo not only is trading below its industry average, but also is trading below its book value.
How does that make it the best stock to buy in 2020? In other words, if Wells Fargo were liquidated, shareholders would immediately see a 23% jump in stock price.
Why Wall Street Doesn’t Always Get It Right
Going back to Wall Street’s hatred of the stock…
One thing you should know about Wall Street analysts is that they often move like lemmings – all together. There aren’t a lot of independent thinkers at the big firms.
They’re also typically reactive rather than proactive. Analysts upgrade a stock when its business starts to improve (usually well after the stock has rebounded) and vice versa. As a result, when you have a lot of bearish analysts faced with an improving stock, they upgrade it.
And stocks still move on upgrades and downgrades. So when only four of 31 analysts rate a stock a “Buy,” there is lots of room on the bandwagon. As the analysts upgrade the stock, the share price should climb.
Conversely, the bad news is already baked into the stock price. There’s not a lot an analyst can do to sink the price lower. They have already said they hate the stock.
Lastly, Wells Fargo has raised its dividend every year since 2011, making it a Perpetual Dividend Raiser (a company that raises its dividend every year). So the yield should be going higher in the coming months.
Owning hated stocks is not for the meek. You’ll be faced with constant reminders of why Wall Street doesn’t like the company.
But long-term holders of beaten-up contrarian stocks outperform the market by a wide margin…
And with Wells Fargo as the best stock to buy in 2020, you’ll get paid a juicy 6.4% yield while doing so.
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About Marc Lichtenfeld
A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. Marc captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.