Bank of America (BAC)

Finally they beat numbers. The litigations risks are cooling down. They will benefit from the US housing recovery. 0.8 times book value.

Predisposed positively to this bank. US financials got hit with uncertainty, liability and lawsuits about 5 years ago. They had to build their reserves because they had issues with how much they could affect the US economy going forward. We are now just starting to get to the good part where the yield curve is rising and capital markets are responding better.

Bank of America (BAC-N) or Bank of Montréal (BMO-T)? He feels the US economy is going to grow a lot faster than the Canadian economy. This will benefit their banks. However, it is hard to go wrong with a Canadian bank from an income point of view. Canadian banks’ income is taxed at a lower rate as a Canadian dividend paying group of companies. Also, very well-regulated and very well-run.

When the recovery in US housing got to a certain state, house prices started to rise and the mortgage rate curve started to steepen. You get a lot more torque in names like this and Citigroup. This one has far more torque than any other US bank. Dividend yield of 1.13%.

US banks in general will participate in the improving US economy. Generally rising interest rates should be good for US banks and you want to have exposure in them. This bank has a much more lumpy historical performance. Thinks it will be early next year before they get approval to do another dividend increase. (See Top Picks.)

The US bank space is probably one of the better spaces to be in. There is good loan growth. Corporations have spent a lot of money buying back stock and their balance sheets are no longer as in good a shape as they used to be. He expects that you are going to start seeing banks issuing equity and a lot more M&A activity. Prefers Wells Fargo (WFC-N), which yields twice as much and is twice as good a bank.

Rising interest rates are very good things for banks. They take in money on deposits and pay you nothing for it, and then they loan it out at higher rates. The difference is called the net interest margins. He sees tremendous opportunity there. Also, thinks the US stock market is going to do quite well by the end of the year. Very low valuations at around 10X. Very good name and the future looks increasingly bright.

(Top Pick July 4 2014, recommended at $16.03 now $16.25 up 2.61%) Still a buy, he likes it. If the yeild curve of the US goes up 1% Bank of America makes 4 billion in revenue. This isn't inconceiveable that this will happen in the next little while. Will continue to do well. They will be moving their dividend towards the same as Canadian banks of 45%. They have way too much capital so they will be buying back their shares as well.

(A Top Pick June 2/14. Up 10.77%.) US bank stocks are looking interesting here. They’re coming off a period where they were not able to pay dividends and earnings growth had been muted. He likes the leverage on this. He traded out of this recently because of his overall negative views on the stock market.

He prefers the regional banks as opposed to the money center banks. They have big capital market divisions and that is not earnings quality to him as loaning money out. He likes BBT-N, and BKU-N.

You could see a bit of a pullback in the share price, just because the 2^nd quarter earnings might not be all that great. This should be a $21-$22 stock price 18-24 months out. You are going to continue to see management focus on cutting costs. When you combine that with mid-single digit growth and corporate and consumer loans, you should see them really benefit from higher ROE’s.

(A Top Pick May 13/15. Up 10.71%.) January (2017) 17 Call. A rising interest rate environment is good for banks. This one is fairly leveraged to residential mortgages. Thinks they have tremendous earning power, and once that starts to turn, it is going to be a pretty dramatic move. He can see $20 on the stock. Would probably sell half his position if it doubled.

He likes the US financials, especially when compared to the Canadian ones. This is trading at a 0.8 price to BV and 13X forward earnings. Has a 9% growth rate.

Thinks you will do well with this bank. The whole banking sector is going to be the beneficiary of the steepening yield curve. That allows banks to do the old-fashioned thing of borrowing short and lending long, at a spread. (See Top Picks.)

He prefers J.P. Morgan (JPM-N) or Wells Fargo (WFC-N). This bank has been a real stinker in terms of the amount of legal costs it has had to pay comparatively, the amount of trouble it got into and the fact that it is still not paying a reasonable dividend.