Bank of America (BAC)

Has liked this for a long time. It’s trading at about 13X next year's earnings. Trading at 1.2X Book, but he can see it eventually trading at 2X Book. There is a very simple story in the US banking industry. You are going to see profitability and earnings growth for a couple of reasons. 1.) The global economy is doing better and 2) credit quality will remain fairly good over the next while. Interest rates, if they go up, will help these areas. Banks are in a 5-10 year cost-saving binge, using technology more aggressively. If they can break through $30, it will go much higher. Dividend yield of 1.6%. (Analysts' price target is $30.)

This probably has the greatest leverage to a rise in interest rates. If you anticipate that the Fed is going to raise interest rates another three quarters of a point in 2018, chances are you are going to get a decent return of this bank. Also, with deregulation coming, he imagines you are going to see much bigger dividend increases.

Doesn’t think this is a time to buy in. They owned it and sold out of it toward the end of 2016 and 2017. The good news are already priced in. Cyclical. When they bought in 2016 it was trading around 8-9X earnings, today it’s around 13.5X earnings. The multiple expanded along with the fundamentals.Thinks the upside and fundamentals are already priced in. (Analysts’ price target is $30.25.)

A really good space to be in as far as a pro-growth theme goes. Preference should be given to the big money centred banks. Technically it broke out of a basing pattern this fall, and then fell back and tested it. It then accelerated. Dividend yield of 1.6%. (Analysts' price target is $30.)

Technically, this has a pretty good chart. The stock recently broke out above its trading range, so it is definitely in an upward trend. Relative strength is also a positive. Seasonally, we are just entering into the period of seasonal strength. It looks like it is going to go higher both technically and seasonally in the next 3-4 months.

Rising interest rates will help this. The decreased regulatory pressures, international operations are all positive for this bank. He sees significant upside.

Money centred banks tend to do well through an economic expansion, but they are cyclical. They won't do well during a recessionary period. Where we are in the cycle still allows you to own this bank. It is still good value. They will be making a lot of money as interest rates rise, because of margin spreads.

It is not his favourite but he has no issue with it. He is more of an ETF buyer. It is extremely overbought. The yield curve is flattening dramatically so the net interest margin is not going to be there for the banks. Toward the end of next year there is more market risk potential also. There is too much risk to step in at this level.

Still trading at close to tangible BV of around 1X. On a PE basis, it is a little more expensive than Toronto Dominion (TD-T), maybe around 14X versus 12X. With rising interest rates, a slightly better net interest margin, a rebounding America, and the corporate tax plan, this company really stands to benefit. This one is going higher.

His initial sell target on this is $38, so thinks it still has quite a way to go. Thinks it will keep going up and their bottom line will keep on improving for the next little while.

It trades at a 25% discount to WFC-N and JPM-N and is less internationally exposed. BAC-N are returning capital hand over fist. Regulations are continuing to come down. The FED feels capital requirements have hit a max. Regulatory reform is a big positive.

Sell Toronto Dominion (TD-T) and buy Bank of America (BAC-N)? When you own a name like Toronto Dominion, you are generally getting a steadier name, and you are probably not getting levered up as to what is happening in the US with rising interest rates, etc. TD also gives you a better dividend of 3.3%, versus about 1.6% from Bank of America.

(A Top Pick Jan 19/17. Up 32%.) Feels there is still more to come. 2 things will help. He is pretty sure there will be another rate increase, and if tax reform comes, their earnings are going to get a little bounce. The stock is still fairly cheap.

He likes this because of rising interest rates, less regulatory interference and the stock is cheap. Even in a bear market, he doesn’t think this is going to get hurt badly. Dividend yield of 1.7%. (Analysts’ price target is $29.)

It is up a bit. If you were looking for a trade over the next couple of weeks, it would probably work out to get out of this.