Bank of America (BAC)

There are 2 big events coming up. The May 3^rd Fed meeting. Not a lot of people think that they will raise rates, but there is a chance they will. That would be very good for the bank sector, especially for this bank. There is also the French election. If Trump delivers some meaningful tax cuts and some regulation repeals, it could be very good for the banks.

They just had a bang-up quarter. They were the best of the big 4 in the US. Their net income margins and net interest income, went way up. He would suggest you check with your financial advisor to see what they say in more detail. He does like this bank.

This has a BV of less than 1. He sees 20% EPS growth. It is very well positioned towards the Trump agenda. Thinks they will do something about the Volker rule and probably lower taxes a little. This bank is very well positioned towards the domestic side of the economy. He doesn’t see a lot of risks. Dividend yield of 1.3%. (Analysts’ price target is $26.50.)

One of the best names in the US. A very diversified base. There is talk of reducing the Frank-Dodd effect which would be helpful to the sector. Also, rising interest rates will be helpful to them. He is expecting a lot more growth on their loan activity. If you are going to have one name in the US, this is the one.

He looks for sectors/themes that are going through significant shifts that can give a long runway for the industry and companies to be revalued. The 2^nd biggest bank in the US, trading at just under 1X BV, and can go higher. Assuming they can grow BV, that would be even better. It will be helped by rising interest rates. They will get the CCAR assessment in June as to whether they can return more capital to shareholders. Generating a ton of cash, so dividends should continue to accelerate. US banks started to perform in June of last year and have just had a classic pullback towards the 150-day moving average, which gives investors a great entry point. This could be a 5-year theme. Dividend yield of 1.3%. (Analysts’ price target is $26.)

Just reported and results were quite good. He likes this name. The capital return story is a growth story. Banks have just had the worst possible scenario ever. Not only were interest rates low, affecting net interest margins but borrowing when the lending book was weaker and coming out of the great recession, as well as this burdensome regulation. A little less regulation would be good. This is a “go to” name.

A North American bank? He would suggest Bank of America (BAC-N) for a US name, and if you want a Canadian name, then he would suggest the Royal Bank (RY-T).

The stock ran up and has pulled back, giving a good opportunity to buy. It has 10% of all the retail assets in the US. It continues to reduce costs through technology and headcount. They have 3 very strong good businesses, retail, corporate investment banking and the brokerage business. Trading just below BV. Thinks the stock is worth in the $38-$40 range. Dividend yield of 1.3%. (Analysts’ price target is $26.)

This has a floor at about $22. If it breaks down through that, it will probably go down to the top of the range in 2015-2016 of $18. The key thing on this is interest rates. As long as it holds $22, you are going to get a chance in the next couple of months.

They raised their dividend quietly, but not too aggressively. They are at the higher end of capital requirements. They did a lot of stock buybacks. He would not be surprised if they raised their dividend soon. He likes it. They are the largest deposit holder. If interest rates rise it drops directly to their bottom line. He is pretty sure deregulation is going to happen and there will be re-valuation.

It is a very good company. They have free deposits upon which they pay no interest. They don’t have to pay a penny more on these deposits if interest rates rise. They would be a major beneficiary of tax reform. He prefers First Republic (FRC-N) in the banking sector, but BAC-N would outperform it if interest rates rose quickly.

They have the housing cycle ahead of them. They are trading at book. They are levered to lower regulations. People are still terrified of the financial crisis. It is one of the best.

Financials have run in the US because of expectations under Trump of less regulation that will free up capital. Also, there is hope and expectation that the yield curve will steepen. In the near term it looks like we are getting a correction in interest rates. We are close to the end of the 35 year bull market in bonds.

Bank of America (BAC-N) or Wells Fargo (WFC-N)? Both are large US banks, so are going to have more in common than in disparities. It is hard to see one going dramatically in one direction and one going in the other direction. They are both going to be interest rate and economically sensitive. If interest rates move higher, margins are going to improve and will benefit both companies. However, he has a slight preference for this bank because of valuation. When looking at BV, this one is dramatically cheaper at about 1.2X.

Trading at 1X BV and the multiple of Book is expanding. They have multiple drivers. They’ve been cutting costs which has been going on for quite some time. They are getting higher interest rates, giving $600 million of additional revenue last quarter from their net interest margins. They win if there is less regulation. They win if there is economic growth, which they are getting. They win if they can return more capital by way of dividends, which they are now allowed to do. Dividend yield of 1.2%. (Analysts’ price target is $26.)