Bank of America (BAC)

He prefers US banks to Canadian banks, given where they are in the cycle. He owned this back in 2016 and it has done very well but the drivers of the growth that were expected in 2016 have now played their role. He doesn’t see a good risk-adjusted return in the near future for this stock.

Bank of America or Wells Fargo? Both are well-diversified and have interest rate sensitivity. BAC has better capital markets exposure, which he likes. Wells Fargo is in the doghouse with leadership, namely with regulatory problems. This hamstrings WF management. This is a big knock against them. Definitely prefers BAC.

Rising interest rates will improve margins and revenues, but also loan growth will increase more than the street expects. (Analysts' target of $34.46)

He likes the interest rate spreads and recommended it when Trump came to office. This quarter he expects a big dividend increase. They are only paying out about 20% of earnings. They have a very conservative balance sheet he believes. The political trend is moving towards helping banks get bigger. Yield 1.5%. (Analysts’ price target is $34.46 )

Likes the U.S. financials and particularly banks. He owns others instead, like JP Morgan and Citibank. There's lots of capital returning to these banks within a weakened U.S. regulatory environment. Strong management.

They will raise their dividend from around 1.5% to 2% in a year, as the payour ratio nearly doubles to 30%, and they'll buy back their shares. They have lots of capital. Headwinds in the past decade in the U.S. have turned into tailwinds. The U.S. economy is growing strongly. BAC will trade at a couple times book value. (Analysts’ target: $34.46)

All American financials benefited from the tax reform and rising interest rates. She prefers JPMorgan Chase & Co (JPM-N).

(A Top Pick April 19/17 Up 43%). He would buy it again today at these prices and trades only 1.2 times book value. The book value is growing at 15% per year. They also benefit from higher interest rates. You could hold this for many years.

This is his favorite U.S. bank. They’ve cut costs well, are a big benefactor of US tax cuts and are big in consumer banking and commercial. The US financial sector as a whole is well-positioned. BAC issued a large number of shares in 2009 during the financial crisis and are finally in a position to be buying them back. The stock sells at 1.2x book value while competitors sell for 1.8 or 1.9x.

He paid $6 and is looking to sell at $38. He believes the dividend will rise further and the stock will rise with them.

US banks are still really cheap. It is going to benefit from tax cuts and less regulation. Really nice growth numbers.

JP Morgan (JPM-N) vs Bank of America (BAC-N) – He holds both of these companies. JP Morgan (JPM-N) is a preferred holding for him as its earnings are less volatile of the two. Bank of America (BAC-N) is second on his list, which carries a large amount of “free balances” (client deposits they pay no interest on), which is very interest rate sensitive.

Bank of America BAC-N or Walmart WMT-N. Prefers BOA. Their regulatory, merger and interest rate issues are now lifting. Wealth management operations through Merrill Lynch is growing fast. Capital markets are reasonably healthy.

BAC-N vs. PRU-N. He leans more toward the banks. You are taking on yield curve and interest rate risk with the banks, however. BAC-N is his preference of the two above.

He likes the U.S. banks and will blog on this tomorrow. The banks traded flat for much of 2017, then tested a breakout. He bought BAC and other banks through an ETF. The stock is pulling back at the moment so perhaps wait a little before buying, but the formation of a long base followed by a breakout is very bullish. This usually signals a rotation of money from other assets (such as FAANG stocks) into this group and you will see more and more money flowing in. With rising interest rates, the banks will do well.