Bank of America (BAC)

Bank of America (BAC-N) or Citigroup (C-N)? This one will give you more of the mortgage business. If your a believer that the economy is going to continue to grow, housing is going to expand, then this is for you. It comes down to where your comfort level is going to be. He would personally prefer J.P. Morgan (JPM-N), given that their investment banking arm is probably doing better than Goldman Sachs (GS-N) right now. This is fairly cheap on a relative basis.

US banks took a big kick today. This is a good bank. He owns J.P. Morgan (JPM-N) and Goldman Sachs (GS-N), because he likes the underwriting as well as the commercial bank. You don’t get that with Bank of America. A lot of the enthusiasm about US banks, had to do with the Trump agenda of getting rid of a lot of the Dodd Franks regulatory structure. If you feel that the Trump thing is a tempest in a teapot and it is going to blow over, this is a buying opportunity. US banks are not expensive, and everybody should own at least one.

Liquidate? He never recommends liquidating. He likes to scale. If you’ve had a good run and there are good profits, and some potential risks to the downside, then you cut a 3^rd. If it keeps going up, then you are still playing, and then you cut another 3^rd. he doesn’t think we are going to get back to the levels that were there prior to 2008. Doesn’t see rates going up materially, from this point on. He would be inclined to scale out of bank names.

Banks are not as profitable now as they were prior to 2008, because they are less leveraged. This bank had to go for a bailout in 2008, and he doesn’t like companies where you can imagine them going out of business. Thinks there are better ideas out there.

The regulatory glare is moving away from money centred banks. If so, they will now be able to leverage up their balance sheets and start lending more. Even more importantly, we are facing an environment where interest rates are going to increasingly become an important factor for the US financial system. Higher rates mean higher profitability. Dividend yield of 1.2%. (Analysts’ price target is $26.)

(Top Pick Feb 27/17, Down 3%) He is adding to US financials on any pull back. They are in the value creation phase. The Fed will increase interest rates.

(A Top Pick Dec 9/16. Up 18.88%.) Synthetic Long Position. A play on financials and is still bullish on them. This is synthetically the same as owning the stock, but much more tax advantaged for a Canadian holder.

Probably the most levered bank to interest rate moves, so if you expect interest rate moves and want to participate, management has been quoted as saying that for every 1% move in interest rates upwards, it accrues $5.3 billion to the bottom line. This works out to about $.50 a share, and even at a modest multiple of 10 or 12 times, you are looking at $5-$6 for every 1%. A good place to be.

They have some very good businesses and are cutting costs through the use of technology. Trading at 11X earnings. Have lots of Tier 1 capital which was at 13.6% in the last quarter. Trading at less than BV of $24.30. Dividend yield of 1.3%. (Analysts’ price target is $26.)

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.