Bank of America (BAC)

He thinks you should own a couple of US financials, from an interest rate point of view. Dividend yield of 1.16%.

Tech and financials are his top US investments. Valuation wise they look interesting and are trading at a discount to book value. You might see some of the acquisitions they did start to come back and generate some earnings. He sees improving earnings growth.

He paid a little over $6 for his holdings and has a target price in the mid-$30. Expects the CEO wants to increase the dividend further. They seem to be through most of their legal expenses. He is happy holding this and can see it doing a double from here.

One of their senior people said that for every 1 point increase in interest rates, they are going to make about $4.5 billion, which works out to about a $5 per share potential increase in stock price using an 11X multiple. The catalyst for growth in US banks is loan growth and a steepening yield curve. Also litigation costs are starting to drain out and getting much more manageable.

He is a fan of US banks, but not a fan of money centred banks like this. They have banking divisions, but also have big investment banking divisions. He likes regional banks that are just pure banks such as BBNT out of Wilmington North Carolina and Bank United out of Florida.

This is kind of a regional bank on steroids, given that they do have a meaningful retail banking presence. About 60% of their revenue is retail banking, but 40% is wealth management and banking investment. If you want exposure to wealth management and retail banking, this is a great name to own. Reasonable valuation. He feels the upside is really in the regional banks.

All of these big US banks are back from the dead. This one has recapitalized, making money hand over fist, and he sees probably rising dividends. Thinks this is a reasonable buy. Not his favourite among American banks. This would be his 4^th pick behind J.P. Morgan (JPM-N), Goldman Sachs (GS-N) and Wells Fargo (WFC-N).

A multifaceted diversified bank which you have to take apart a little bit here. Branding is phenomenal. Got hit pretty hard as a result of mortgage lending with some of the acquisitions, as a result of Merrill Lynch. Had a tough time coming out of the crisis, and there is still the depression and valuation. Has about 75-80 points of BV right now, so there is definitely an argument to be made on valuation. Litigation is coming down. There are definitely some tailwinds. Domestically focused, so there isn’t the emerging-market exposure. The problem is that they have an enormous regulatory burden for years to come. Capital returns should be picking up in order to catch up to their competitors, but at the end of the day it has a discount and a reasonable valuation for a reason. He doesn’t mind it. Prefers midcaps including SPDR S&P Regional Banking ETF (KRE-N).

US banks have a slightly different period of seasonal strength from Canadian banks, and is related to when their year end occurs. This occurs in January in the US versus the end of November in Canada. Technically the stock has been in a trading range for the last little while. If it gets above the top of its trading range, then you could see a move going forward. Historically, this bank has done very well around the end of January right through until April of each year. It is a little too early to be invested in this bank for seasonal trade.

We have a bit of a toppy market from a valuation standpoint and you want to get something that is cheap. This trades at 10.5X next year’s earnings and 10.6X this year’s earnings. All of the legacy issues with the housing crisis, etc. are now in the rear view mirror. They have a great retail franchise. This is going to be a capital return story for investors. Very cheap. Dividend yield of 1.15%.

With interest rates going up, net interest rates could do well. Going into 2016, the dividend should increase. Continuing to cut their cost structure. They have some incredible businesses. This is really a global bank. There are no major legal issues that they face and he thinks the Fed is going to allow them to increase dividends and buy back shares into 2016. Dividend yield of 1.13%.

He has an ETF that holds the major US banks. This one has a bit of a lid at about $18. There is a trading range. It has broken a bit of a trading range.

One of the few places in the market he is comfortable with is the US financials. As rates start to go higher, the banks obviously benefit because of the structure of their lending curve. Expects the US banks will start looking at dividend payouts, particularly this one, over the next couple of years.

This bank is leaning more towards the retail side of things which he really likes. They are focusing on customers and getting them in the door. There will be a more conservative growth number, but the volatility will be a lot less. Right now his view is more positive on the Canadian financials.

Prefers Wells Fargo (WFC-N). P/E ratio is 10.3% and the earnings are not going up that much.