Bank of America (BAC)

If US interest rates rise, banks might go up. However, if people believe there will be a rate hike and there won’t be another for another year, you could possibly see them fall off afterwards. This is very undervalued and is trading below tangible Book. At some point, people will recognize that these banks can still generate enough earnings to pay dividends. This one has been allowed to up their dividend, and will continue to do so and will do a catch up with some of the other big banks. They are also doing buybacks.

A large, bulge bracket US bank with capital market banking and mortgage underwriting. There is an activist investor wanting to improve returns and margins and to get management better focused. He prefers WFC-N. He is more pre-disposed to US banks because of the recovering economy. He thinks the US Fed will raise rates in December.

There has been a lot of negative sentiment around the US banking sector, particularly with a very flat yield curve and a low absolute level of interest rates. It has made a challenge for banks to earn those higher net interest spreads that people have been waiting for. With higher rates, they are gradually going to earn higher interest margins, and the sentiment in the sector will change. This bank is in a good position to benefit from those trends.

With US banks, it is really a call on interest rates. Coming into the year they had some strength with expectations for interest rates going up, but that got completely deflated resulting in some pressure. They are under such attack from multiple levels, such as rates and regulations. There is also the fintech angle. However, valuations are well below BV. Thinks the group will be lumpy, but years out she expects they will be higher.

Chairman and CEO is the same. He is a fan of these being separated. Feels that once these positions have been given, if you separate them it would feel like it was a demotion. The real question is, how strong is the board. He is a fan of stronger boards.

He wouldn’t try to time a purchase from a trading standpoint. Take a position and wait for a longer-term secular move in the banks, and you should be well rewarded.

He is not a fan of the money center banks. He prefers regional banks. He would prefer TD-T [which the caller also asked about] although he does not own it either.

Recently had some nice earnings. Did $.36 a share, versus $.45 a year ago. The big surprise was that their trading revenue was a big standout in the latest earnings. All the banks continue to be dogged by the legal fees surrounding the crisis. Unfortunately they are still stuck in a trading range.

The big US banks were constrained over the last few years as the Fed made it clear that they didn’t want them returning cash to shareholders until they built up fortress balance sheets. As a result, people held off on investing. This bank gives you almost a straight shot at the US domestic economy. The banks in general lagged the market until a few weeks ago. The banks are now starting to lift. He would also consider J.P. Morgan (JPM-N), which has a very strong capital markets business. Both are very attractive and will give you great dividend growth.

(Market Call Minute) Reported today with disappointing numbers, but better than what investors were expecting.

If looking for retail/consumer exposure in the US, this is a good way to get into the space. He likes the US consumer, given household debt levels being considerably lower than Canadian. Feels the consumer at some point is going to start doing renovations, buy a nicer home, or upgrade their car. Prefers regional banks, but if you want to step into this one, he would suggest a half position at first on weakness.

If you started hearing talk of the bigger US banks being broken up, the parts are worth more than the whole. This is a longer term thing. This is where you would get the real value from this sector.

(A Top Pick July 27/15. Down 22.51%.) A year ago he thought rates were going to go higher in the fall, but they never did. The bank passed the Fed requirements with flying colours, and are allowed to raise the dividend and buy back stock. They are earning more money and the prospects are better, but they’re getting squeezed by rates being incredibly low. He is holding onto the thought that the Fed probably will raise rates in December.

(A Top Pick March 21/16. Down 4.23%.) He had never thought the US banks, such as this one, would drop 30% from the end of December to mid-February. It has bounced back a little, but is still down roughly 20%. A very rate sensitive bank, but trading below tangible Book. Very cheap on a relative basis, but he questions if this might be a value trap.

He likes this. The key thing is that they have moved through this horrible tunnel of litigation. Because of that, the bottom line should improve. Dividend has been increased from $.01 a share to $.05 a share, and thinks it will go up further. Can see the shares going up quite a distance from here. Dividend yield of 1.6%.