Bank of America (BAC)

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.

There has been a basing going on for quite a while. There are three peaks and we just came off the third. You buy at $15 and sell at $18.50. Longer term indicators are just starting to turn up. He does not think you will see a spectacular move on this and he prefers JPM-N

He is a big fan of this bank. It has been challenging year for all the banks. It pulled back because interest rate hikes were not coming. They announced their earnings and blew it out of the water with $0.04 above expectations. Also, said that if their trading revenues did not pick up and do the kind of things they are expecting, they are going to get out of that business. Thinks the real rally in the stock is going to come when the Fed actually raises rates. You can buy a $17 Call for Jan 2017, or even the 2018 if you want to go away out. He would buy and see what happens.

It is probably a very good entry point here. He compares it to JPM-N. At these levels BAC-N looks interesting. There could be a period in time when the European banks outperform the North American banks. This one is a good hold for 5 years.

He views all of the banks as being under the same influence. He owns C-N and WFC-N. BAC-N moved away from a lot of their troubles. They have the ability to catch up a little bit more than the more senior banks. There is some catch up in terms of valuation.

(A Top Pick Dec 12/14. Down 8.26%.) CEO has done a fantastic job of picking up the pieces of what was a pretty distraught company a few years ago. Thinks this is better value right now and has better sensitivity to rising interest rates.

Wealth management and investment banking are 40%. They are 60% retail banking. It had a tough time moving up, not all regions are recovering at the same pace. He chooses regional banks.

This is a great entry point. Very rarely can you look at a large cap like this, and pick it up at less than 10X earnings with the prospect of significant earnings growth. Thinks the EPS potential is $2. If you put a 10X multiple on that, you can easily get to $20. This is going to be loan growth and a combination of lower expenses that will really drive the EPS expansion he is expecting. Dividend yield of 1.24%.

(A Top Pick Sept 23/14. Down 3.3%.) Had been looking better up until we had the last correction about a month or so ago. It will go after this pullback is over. Fundamentals are looking quite good.

Bank of America (BAC-N) or National Bank (NA-T)? Buy National Bank. It has a much bigger dividend and trading at much lower multiples. The Cdn$ is cheap here, so why convert unless you have US$. If you do have US$, convert back to Cdn$ and put it into National Bank.