Longtime Fool.com contributor Matt Frankel, CFP, is an avid value investor, so it might not come as a surprise that Wells Fargo (NYSE:WFC) is near the top of his watch list. However, he’s also got his eye on a cybersecurity stock whose high valuation might be more than justified by its market opportunity. In this Fool Live video clip, recorded on July 2, Frankel explains to chief growth officer Anand Chokkavelu why these two stocks are on his radar now.
Matt Frankel: So, Wells Fargo, obviously, it was the winner of our bank stocks show. It was my No. 1 that day, I still own it in my portfolio. I like Wells Fargo as a great recovery play because they are the big bank that has the most to gain from things getting back to normal. Seventy-five percent of their business roughly is just savings alone, they have very little investment banking, 7% of their business is investment banking, 75% is just basic savings and loan. They’re just being able to normalize the dividend, the stress test results happened last week. Wells Fargo was one of two banks that doubled its dividend, the other was Morgan Stanley, which surprised everybody. Their dividend is starting to normalize, they’re still operating under that Federal Reserve asset cap, which should go away sometime soon, their new management team is doing a great job. I haven’t heard Elizabeth Warren attack Wells Fargo anytime recently. That’s usually a good sign that they’re doing something right. She was all over them for a while. Did you watch some of that testimony, it was riveting.
Anand Chokkavelu: I did not.
Frankel: She’s fun to watch when she is grilling bank executives, I have to say. It trades at a historically cheap multiple still. I don’t want to say people have forgotten or let go of their bad behavior, but everyone who is going to switch because what I think already has. I don’t think you are still seeing people abandon Wells Fargo as customers because of what happened in 2016, 2017. It trades at about 1.1 times book value. Historically, it’s been in the 1.4-1.6 range. Still a pretty cheap bank stock, and like I said, I think they have a lot to gain especially if interest rates start rising, so that’s why I like them.
Chokkavelu: Wells is tied for number six with the other company which is CrowdStrike (NASDAQ:CRWD). CrowdStrike is a pure-play leader in providing cybersecurity via an endpoint protection platform. It’s executing well, it’s growing well, and folks who know a heck of a lot more than I do in the space, like Tim Beyers when we had Tim on the show, they love it. Problem, at least for me, is the valuation steep though. It’s a $50 billion market cap and 50 times sales. That is pretty steep. Matt, I seem to recall. I think you were on with Tim and I and I think you were really interested in CrowdStrike and maybe a couple of the others. Did you ever buy into CrowdStrike?
Frankel: I did not pull the trigger. By the time I was ready to like a week later and it shot up by 20% and I just got cold feet about it. The value investor in me was like, “This isn’t the same stock you talked about three weeks ago.” I know that’s a bad way to think, I totally get that. I don’t know what I bought instead that day, but I put the money that was year-marked for cybersecurity into something else. But no, I still don’t own CrowdStrike, although I love the company, it totally deserves the valuation it’s getting, but I haven’t bought it yet.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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