Opinions
John Petrides
Bank of America
BAC-N
COMMENT
Oct 24, 2017
Stock price when the opinion was issued
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Loves the money-centre banks. Not quite as expensive as JPM, but more interest-rate sensitive. A gently falling interest-rate environment (which he thinks will come to pass, though it's up for debate), net interest margins will widen and that's traditionally good for banks. Capital markets business has really built up, and will open up post-Biden. Economy in pretty good shape. Undemanding valuation. Yield is 2.3%.
(Analysts’ price target is $52.46)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)
Financials are one of his favourite sectors. Feels the wind is at the back of the banks. They are showing the healthiest balance sheets in 60 years. Interest rates are creeping higher, and the whole economy is doing quite well. Although this is up a lot over the past 12 months, it is still trading at a discount to where tangible BV will be 3 or 4 years from now. Really good value here.