Opinions
Kash Pashootan
Bank of America
BAC-N
COMMENT
Jan 29, 2016
Stock price when the opinion was issued
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If the US consumer struggles and can't buy goods and job losses rise due to tariffs, this will slow down the economy and directly impact banks like BAC. It's hard to know where tariffs are going. The dividend is high and BAC has a good, long track record. Best to collect the dividend and wait.
Financial sector offers great promise, though it's reacted to current markets by pricing in a potential recession. Slower economic growth would not be good for banks. Absent a recession, with consumer confidence returning and unleashing M&A, the sector provides a good opportunity.
A less expensive choice further down the food chain from the likes of JPM.
Likes TD a lot. Very undervalued at 10x PE. Potential for multiple to rerate in medium term. More upside as it distances itself from the overhang of regulatory infractions. All that should give you a better total return. He'd pick TD.
For BAC, even with deregulation in US, the big banks are already so large, it's hard to imagine they'd be allowed to get even bigger.
Stock's fallen a fair bit, which was unexpected given the numbers reported last week. Lots of capital; lots of room to increase dividend and buy back shares. Environment is tough with potential recession. Trading at 1x book, 10x PE. Some of the best businesses in the world -- asset management, financial services, capital markets (one of the top 4 players globally), retail, credit cards. Yield is 2.74%.
(Analysts’ price target is $48.46)Keep a full weighting in the financial sector, which is primed for doing well in the next leg of the market. The sector is not expensive and has policy tailwinds. Banks are best capitalized in their history. It's a red herring--don't be scared off by Trump's Big, Beautiful Bill (and the fear of higher taxes).
The difference between US and Canadian banks is that the US banks don’t generate as much revenue from retail banking, personal and consumer. They are quite heavy in the investment banking and wealth management. This bank tends to operate more like what we know in Canada, in the sense that 60% of its revenue is retail and 40% is wealth management and investment banking, a nice mix. He has targeted regional banks, in order to trim the fat of the lumpy revenues from investment banking. Although the US economy has been improving, it hasn’t been improving at the same pace in all regions. This is a high-quality name with a reasonable dividend, but hasn’t done well over the last 52 weeks. Wouldn’t be in a rush to buy this, but would look at some of the regional names, such as Columbia Banking System (COLB-Q).