Bank of America or Wells Fargo: which stock to buy?

2026-07-11 · By Lubin Danilo, founder of Lubin Investment

Bank of America and Wells Fargo both report earnings on July 14. On my criteria, Bank of America clearly comes out ahead: better cash discipline, regular buybacks, and a stock already trading below my reasonable buy price. Wells Fargo has a real turnaround story, but its recent cash figures worry me.

Two giants, two different trajectories

Bank of America and Wells Fargo are two of the largest banks in the United States, both present in nearly every banking business: deposits, lending, cards, investment banking. But their recent trajectories differ. Wells Fargo is coming out of a long period under enhanced regulatory oversight: after the fake-accounts scandal where accounts were opened without customer consent, the Federal Reserve imposed a strict cap on its total balance sheet size in 2018. That cap was lifted in June 2025, and Wells Fargo has been accelerating ever since: its ranking in US M&A advisory climbed from twelfth to eighth place between 2024 and 2025.

Bank of America, on the other hand, does not have this regulatory-restriction story to tell. It has been a more stable performer recently, with a wealth management business (Merrill) that weighs heavily in its results.

What my framework says: two different scores

Bank of America validates 6 out of 10 criteria, Wells Fargo only 5. The gap plays out mostly on cash conversion. At Bank of America, $1.66 of real cash is generated for every $1 of accounting profit: a sign of good-quality earnings, not inflated by accounting effects. At Wells Fargo, that figure drops to just 0.05 (5 cents of cash for every $1 of reported profit), and its Cash ROCE (cash generated relative to capital employed) comes in at 0.3%, essentially nil.

This gap does not mean Wells Fargo is doing badly: it is consistent with a bank in full loan-growth mode after its cap was lifted, which temporarily ties up a lot of cash on the balance sheet. But in my numbers as they stand today, this cash-conversion weakness is real and shows up as a completely distorted price-to-free-cash-flow ratio (over 230 times), which is not comparable at this level.

The price: where the gap widens further

Bank of America trades around $59.67, and my model puts a reasonable buy price under $70.09: the stock therefore passes my valuation test, a rare enough case to be worth flagging. On its price-to-free-cash-flow ratio, roughly 8.4 times, it remains cheap.

Wells Fargo, at around $87.16, does not pass this test: with very weak recent free cash flow in my numbers, my model puts a conservative buy price under $1.98, a level that mostly reflects the current fragility of generated cash rather than a judgment on the quality of the banking franchise itself.

What to watch before the July 14 earnings

Bank of America and Wells Fargo both report second-quarter results on July 14, before market open. Bank of America beat estimates in the first quarter ($1.11 in EPS versus $1.02 expected), and analysts expect $1.13 for this new quarter. Wells Fargo nearly hit expectations exactly in the first quarter ($1.60 versus $1.60 expected), with $1.73 expected this time. The real thing to watch for Wells Fargo: does its profit-to-cash conversion improve, or does it stay under pressure from loan growth?

How I call it

On current numbers, Bank of America clearly wins: better cash discipline, regular buybacks (share count down 2.6% a year), and a price already under my buy threshold. Wells Fargo has an interesting turnaround story after seven years under a regulatory cap, but I want to see its profit-to-cash conversion improve before taking it seriously. A good story is not enough if the cash figures do not follow yet.

Key takeaways

Bank of America (6/10) beats Wells Fargo (5/10) on my framework, mostly thanks to far better conversion of profit into real cash
Wells Fargo just came out of a 7-year regulatory cap (lifted June 2025) and is accelerating growth, but its recent cash is under pressure
Bank of America already trades below my reasonable buy price (around $59.67 versus a $70.09 threshold)
Both banks report earnings on July 14 before market open
What to watch for Wells Fargo: improving profit-to-cash conversion would confirm the turnaround is truly showing up in the numbers

FAQ

Why is Bank of America rated higher than Wells Fargo in my screener?

Mostly because of converting profit into real cash: $1.66 of cash for every $1 of profit at Bank of America, versus only 0.05 at Wells Fargo currently.

Does Wells Fargo's regulatory cap still exist?

No, the Federal Reserve lifted it in June 2025 after seven years, allowing the bank to accelerate growth since.

Why does Wells Fargo's price-to-free-cash-flow ratio look so high?

Because its recent free cash flow is very weak in my numbers, which mechanically inflates this ratio. It is not comparable to a normal ratio and reflects a period of cash pressure rather than a definitive conclusion about the company.

Should you buy Bank of America or Wells Fargo before their July 14 earnings?

On my current numbers, Bank of America has the stronger case. This is not personalized investment advice, do your own research before any decision.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).