Bank of America (BAC)

He prefers US banks to Canadian banks. He stayed away from money center bank because they have big operations in capital markets. Regional banks give you a bigger leverage to consumers.

The real winners from the recent stress tests, were regional banks, who were allowed to increase their payout ratios from 30% to 35%. This bank was not allowed that freedom, but they were given the ability to buy back shares. This has some good catalysts ahead of it as it is tied to the US housing market.

If interest rates start to go back up, some of the pressure on bank margins would disappear. US banks are very cheap. BAC-N is at its book value. This is a real bargain giveaway. He has had a warm feeling for it since the recovery. The banks have not been able to get going yet and he does not know if they will, but maybe rates going up would be the catalyst required.

Bank of America (BAC-N) or Banco Santander (SAN-N)? Banco Santander has a much lower dividend yield. This bank is a play on the health of the domestic US economy. If you are comfortable with that, this is probably the one to stay with.

(A Top Pick March 26/14. Down 5.57%.) This bank has lots of capital, but the issue is, can they maintain it. The Fed was unhappy with what would happen to their revenue and their capital structure, if something happened to the economy. Thinks they were smart to buy back their shares instead of increasing the dividend. He still likes it.

Banks have been struggling. They’re always being sued by the government for one thing or another. Just don’t seem to be able to keep out of trouble. They continue to be trading vehicles. You buy this around $15 and then sell it at around $17.

Has been lightening a little on the US banks recently, but is not worried that much. We are not going to see another collapse of the banking system. This is at a turning point where some of the acquisitions they made at the bottom of the cycle are starting to benefit a little bit more and you will start to get a dividend paid a little bit more. Valuations are fairly low historically. Feels this has the most upside leverage between it, Citigroup (C-N) and J.P. Morgan (JPM-N).

You have to have this or C-N or both in your portfolio. The market either loves them or hates them. They are both ‘coming out of the blue’. They have regulatory problems. There is a huge speculation on C-N. for BAC-N, the model price is $18.95, 20% upside so the market is believing the balance sheet. It is cheaper than the Canadian banks.

If you have a spot for a financial to complement the rest of your portfolio, you should fill it. This one is an opportunity. Generally speaking, the whole group is going to move together. It is going to take a catalyst and that catalyst is likely going to be higher interest rates that will allow net margin spread to increase because of a steepening yield curve. This is a decent choice in US banks. (See Top Picks.)

Pretty attractively priced here. Trading at about 10 or 11 times this year’s earnings. If you believe that we are still in the 1^st half of a bull market, as he does, this is going to continue to participate in that recovery.

Late last year paid a very big settlement to the US Justice Department to settle the majority of its outstanding litigation. Trading below Book and right near tangible Book. Trading at around 10-11 times earnings. Thinks the growth outlook for the US is better than in Canada. Dividend yield of 1.22%.

(A Top Pick Feb 13/14. Down 2.13%.) This has not being great, but decent. In general, the large money centred banks have underperformed the market. Money is coming back to shareholders in the form of dividend increases and share buybacks. All the litigation that has been in the overhang is for the most part behind them. Still a good holding.

He owns 2 American banks, J.P. Morgan (JPM-N) and Goldman Sachs (GS-N). Goldman Sachs for its investment banking activity and J.P. Morgan just for its size and scale. Bank of America has pulled back a lot, but he thinks probably the best straight commercial bank in the US right now is Wells Fargo (WFC-N), and this would be his pick. Most investors should really own Canadian banks because the dividend tax credit gives you a tremendous advantage. He also thinks the earnings momentum in the US is probably reducing.

The US is better than Japan, Russia, despite their huge debt and all the money they are printing. The financials are turning the corner. The acquisitions at the bottom of the market will eventually be accretive. They will start to generate earnings growth. Prefers this over C-N and JPM-N.

(A Top Pick Jan 16/14. Down 10.33%.) Q4 was a bit of a disappointment. Thinks the market is really overlooking its good points. Good credit quality, lower energy exposure than other banks and are levered to a housing recovery and improving US consumer. Cheap at 1X 2015 estimated tangible book value. This is not a question of “If”, but “When”.