Bank of America (BAC)

US Banks are very successful and are trading at reasonable valuations, but he prefers Morgan Stanley to BAC.

Management is really up there in terms of reputation. Model price is $32.70 or a 5% upside. They increased their dividend a month and a half ago. There is still more dividend growth coming. The financials need to lead the bull market higher. (Analysts’ target: $34.39).

Own it for a long time. Very cheap. Have great growth prospects. Well capitalized. Trades at 1.1 times book and 10 times next year earnings. Regulation is coming down. Yield of 1.9%. They have a great global franchise. He likes that they are returning a lot of capital to shareholders via buybacks and they are increasing their dividends. (Analysts’ price target is $34.39)

Comparing this to Citigroup: he owns both stocks. Both came out of the 2008 crisis in worse shape than the other large money center banks; both have recovered substantially and are trading at a narrower discount to them now. He expects the gap to close further. Citi trades at a greater discount and has more upside potential.

Historically, the banks have been an underperforming industry. He owns zero banks. BAC is one of the better large cap banks, but they are very sensitive to interest rates. An investor is really guessing what the front-end of the interest rate curve will be.

His target is $38 and change. He paid $6. He thinks there is at least 20% upside. He is happy to sit and collect dividends on this one. This has been a great play for him since 2008/9.

He likes the stock and banks in the US. Ten years yield is at 3% and that is where you want it to be. If we get another bump up in the interest rates it would be great for the banks as they tend to borrow short and lend long. It sold off also.

Over the long term it is a great company. The entire group of larger cap banks in the US are very well positioned. They are as well capitalized as they have ever been. They are benefiting from a strong US economy and housing market. Loan losses have been very modest as housing prices continue to rise. They trade at a pretty low PE multiple. He thinks they will continue to do well.

(A Top Pick May 1/17 - Up 26%.) He thinks it is a great story. Continue to bring down costs. Continue to see growth. Trading around book value. Still a lot of upside.

BAC vs Citibank: He feels BAC will go much higher. He likes it for its Merill Lynch investment banking and portfolio management side. There's nothing wrong with Citibank and it too will do better. He would add to his BAC position. He think U.S. banks in general will have another run.

Well-run. This (and Morgan Stanley) were the most damaged banks in 2008, so they've had to grow their valuations since then. Now, they trade at a discount to book value. They're profitable, though struggling now with loan growth.

The last earnings report was excellent. The stock now yields 1.6%. He owns a lot of this personally. His model price is $32.45, which is a 9% upside. He expects it to go to $32.70. If the market moves higher from here, it will be led by the too-big-to-fail banks. (Analysts’ price target is $34.34)

It has a discounted valuation, in his opinion, despite a rising dividend and excellent capitalization. He thinks the US banking sector is the strongest in this space and this is the most focused in US business of any of the biggest banks. They will be impacted by the flattening of the yield curve, as near term rates have risen. He would stay away until there is more certainty on trade war issues and watch the trend in the yield curve.

He loves U.S. banks. This is quite undervalued. They may be over-earning now. Nobody is defaulting on their mortage and the economy is humming along. Well-run company.

He likes U.S. banks, his largest weighting. But the yield is curve is flattening. He's holding tight to these stocks. Expect more share buybacks and dividend increases. It pays a 1.7% yield and this will rise. Be patient with this.