Bank of America (BAC)

A little too complicated a stock. It has a lot of moving parts. Also, any company that had to turn to the government for help in 2008, scares him. They let themselves get levered too high, so he doesn’t trust the risk controls. He would prefer something like Manulife (MFC-T) which has a better and steadier free cash flow yield and also pays a nice dividend.

US financials have a way to go, two or three years. It is only going to get better. It pays a dividend. He is confident the housing market will stay robust. (Analysts’ target: $26.00).

Feels a lot of people are hoping this is going to happen and if he is wrong, he will be running for the hills. The US banks have really done nothing for about 11 years and he feels they have a lot of upside from here.

Likes the low cost to Book ratio, which is trading at .8X. Compare that to Canadian banks, which are at 1.6X. Also with some of the deregulations that are coming in the US, this bank will be a beneficiary.

(Market Call Minute) You could buy it for exposure to the US economy.

As US interest rates rise and the net interest margin environment for the banks improve, all banks should do well. This is probably one of the cheaper ones on a valuation basis. They also have a large consumer mortgage business, which they should benefit from going forward.

Has used this a few times as a Top Pick over the last 6 months. If he had to pick one bank in the US, this would probably be it. Very domestically focused. He likes the improvement that is going on in the US economy. They are an enormous beneficiary of rising interest rates. In the most recent quarter, there was one interest rate increase, and this bank had an additional $600 million of earnings from one interest rate increase. Trading at just over 1X BV. You are going to get dividend growth, earnings growth and multiple expansion. This has 5-6 years in front of it.

(Top Pick Feb 11/16, Up 113.46%) They had a big run after Trump came in. The financials are not expensive at these levels. It is still below book value. They are massively overcapitalized so there should be buybacks. You need to see actualization of some of the policies coming in.

Recently Shorted this in his Hedge Fund. People are paying up for a turn in earnings. It is coming, but maybe not at the rate that was to be expected. The positive view on the yield curve for financials is certainly positive. Interest rates had a bit of a move to the upside, but they seemed to have stalled out. Unwinding Dodd-Frank is going to take a long time. He wouldn’t own it at this time.

He has never been a fan of management. He only owns regional banks in the US. If he were to own a big US bank, it would be J.P. Morgan. This bank is a big beneficiary of the Dodd-Frank provision being repealed or pulled back. It is also benefiting from higher markets.

Despite the massive run in financials he still likes the stock and the sector. It is trading at a discount to its tangible book value. They have only been able to grow their bottom line by cutting costs. Deregulation would be a massive positive to them if it happens.

The chart is showing consolidation. This is in the right sector and in the right industry group. Financials broke out before Pres. Trump was elected. The really good promise was the rollback of the Dodd-Frank act. He has a pretty positive view of financials. The stock is cheap relatively speaking and the environment is very positive.

His target is in the mid-$30, so he will continue holding it for a while. Interest rates going up are good for them. Banking regulations going down are good for them. They’ve gone through most of the litigation they had to deal with, and that lowers costs. He likes the CEO. Thinks it will do well from here.

He loves it and has a substantial position. It hits new all time high $25.80, 11% upside.

He loves this bank. It is a company that is transitioning from being kind of a “self-help” story, cost cutting to capital return. Has a great franchise in terms of wealth management. It is the leading bank and is domestically focused. You are going to see increasing capital return and a steepening yield curve. There is very little that can derail financials.