Jim Cramer says to buy Wells Fargo stock to capitalize on the Fed’s rate hikes

CNBC’s Jim Cramer on Monday advised investors to add Wells Fargo to their shopping lists.

“Wells Fargo has now taken the lead as the best net interest margin play in the group, and their multi-year turnaround plan is finally bearing fruit. … It’s by far my favorite name in this new leadership group,” he said.

The bank beat Wall Street expectations on earnings and revenue in its third quarter, though its profit was hurt by its decision to boost its loan loss reserves. Cramer said that the most important part of the bank’s quarterly results was its net interest margin, which is the spread between what they pay for clients’ deposits and the return it gets from its investments.

The money Wells Fargo receives from this spread, known as net interest income, has “massively outperformed” expectations, according to Cramer. The bank said earlier this year that they expected 8% net interest income growth from 2021 and raised that forecast to 24% on Friday.

“These guys are printing money thanks to the higher yield curve,” he said.

Cramer added that Wells Fargo’s net interest margin is better than those of its competitors, whose quarters he also recapped on Friday. Adding to his bull case for the bank is its efficient cost control measures, lack of capital markets exposure and its new mergers and acquisitions business.

He noted that while he’s bullish on the stock, investors should keep in mind that the Federal Reserve initiated an asset cap on Wells Fargo in 2018, limiting the bank’s ability to grow.

“Although there’s a possibility of the cap being lifted next year … we have no idea when that will happen, so I wouldn’t include it in your calculus,” he said.

Disclaimer: Cramer’s Charitable Trust owns shares of Wells Fargo.