Bank of America (BAC)

(A Top Pick Jan 23/14. Up 1.44%.) Thinks he was early on this. They are going through their model and are fixing the things that need to be fixed. The market is not prepared to reward them yet. On every quarterly conference call he thinks it will be the last time they have to pay a fine or litigation of some kind, but then there is another one. He thinks they are now at the end of that process and they were just allowed their 1^st dividend increase in the last quarter.

99% of revenue is from the US. The big headwind on legal should be starting to subside. A very, very strong consumer-based business. He likes it very much and thinks it will continue to move higher.

0.8 times book, not at a high PE. 10 times earnings. Legal issues have gone away. 10% of all deposits within the US. Thinks there will be a lot more M&A and so they will do well. Great card business. Sold off non-core assets. Management has done a great job.

J.P. Morgan (JPM-N) or Bank of America (BAC-N)? He is more familiar with J.P. Morgan, so that would be the one he would pick.

This bank would love to be able to have a dividend right now, but are still paying the debts back from the financial crisis and paying what they have to pay to the regulators. Thinks they will eventually be allowed to. There is some good earnings leverage here. This has had a pretty decent run. He has taken a little bit of money off the table.

One of the banks that came out with that very large deal with the US government, paying off a bunch of the charges against it. Sees any of the banks that cleaned out their lawsuits with the US government as generating capital, getting back to more normalized dividend levels with an opportunity to buy back their shares. If housing really starts to recover in the US and the mortgage market starts to recover, they might actually start to do some lending. Dividend yield of 1.16%.

Doesn’t own any banks and is not a huge fan, but would probably prefer US banks to Canadian ones. This is an alright Hold. Had a decent recovery here. Relatively low dividends, but are being allowed now to pay out more, as the balance sheets have recovered. He is still a bit cautious, and would probably Buy on weakness.

Bank of America (BAC-N) or AT&T (T-N)? When you are valuing stocks, you have to look at the long-term free cash flow that a company can generate. In the short term, you are probably better with AT&T. It depends on what you want in the stock. AT&T will be much more stable, and he would prefer it because he is much more cautious on banks in the short term. However, on a 10 year term, you would probably make more money on this one.

She can see this higher in 12 months. A lot of similar types of stocks trade together, so you wouldn’t see much of a difference between this and Citigroup (C-N). The stock is trading at a considerable discount to BV. Things are improving. They are rationalizing their asset base, and are really working towards those ROE’s that everybody would like to see. When they are able to return their capital to shareholders, as she expects they will, ROE’s will automatically get better. She expects it to go much higher from here.

Trading below 1X BV at .82. Good value here.

This is “coming out of the blue”. Has $2 trillion in assets. There is a lot of potential here. Once these banks are deemed to have enough capital, they are going to start to raise their dividend. This is where your portfolio should be. A lot cheaper than Canadian banks, with a lot more upside, plus you have the US$ exposure. You should be okay for the next 3-5 years.

Had looked at this a few years ago, but decided to go with J.P. Morgan (JPM-N) instead. Probably would have done better with this one, but found comfort and safety with J.P. Morgan’s balance sheet, rising dividend and its share buyback. Feels this one has more torque and more leverage, if things are going to improve. A wildcard is rising interest rates.

10% of all deposits in the US are with them. Stock has not done much at all this year, but you should see improvements in the company next year. They have a great retail and commercial franchise, great investment banking business and a great wealth management business. They will continue to generate lots of capital and then buy back shares and increase the dividend with it.

This has gone through the mill in the last few years. The US banks did a great job in recapitalizing their balance sheets. Has worked its way through all its lawsuits and the US economy is steadily getting better. This bank is getting slowly and steadily better along with it. There is, and continues to be, outsized opportunity for dividend growth.

Every company, sector and industry has valuation metrics that they respond best to. The banks, because they tend to be quite cyclical, don’t respond well to earnings. The thing to look for in banks is Book Value, or more specifically tangible BV. Because of what happened in 2008 with the regulation that came out and having to raise an incredible amount of capital to satisfy the regulators, the banks have struggled a little. Stock price has fallen to where they are trading at a discount to Book Value. This one is probably around tangible book. His favourite is Citigroup (C-N), which he feels has a good runway ahead of it.