The goal of any company is to grow its products and services. However, sometimes a company is structurally prevented from growth. That could come from having a local or regional monopoly, like a railroad or utility.
Sometimes, other government restrictions can hold back a stock. When those restrictions disappear, however, a company can suddenly get set to grow. And that could lead to a catch-up rally reflecting the opportunity for faster growth.
For instance, regulators just cleared megabank Wells Fargo (WFC) from its prior scandals. The company is no longer under an asset cap. That could allow the bank to underwrite more business, or acquire a moderately sized regional bank.
The asset cap has curbed Wells Fargo from growth, which is seen with revenues up just 3.4% over the past year, and with earnings down about 1%.
Wells trades at 1.2 times book value, a discount to many of the other ultra-large banks in the United States today. And shares trade at 10 times earnings, indicating a compelling valuation here.
Action to take: Wells Fargo looks like a relative value among the big bank stocks today, and the company has an opportunity to grow more quickly now that regulators are stepping back. That could help shares rally even further in the months ahead.
Today’s investors also get a 2.8% dividend.
For traders, the January 2025 $60 calls, last trading for about $2.05, could see high double-digit returns on a year-end rally for shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.