Bank of America (BAC)

As they make more profit, the government will continue to take a little bit of money off them. A change in government might change that. These big money center banks will continue to grow. Get the US banks on the downside and ride them up. This one is a bit risky for him, however.

The outlook for this is fairly positive. They have had everything but the kitchen sink thrown at them, in terms of fines and penalties and recovery of the financial crisis several years ago. Trading at 10-11 times earnings and paying a fairly decent yield. He prefers the Canadian banks.

Feels they are out of the penalty box. This could be a pretty good stock from here.

There is really no catalyst. Loan growth is picking up a little bit, but margins and the net interest margin, because of the flat yield curve, just isn’t there. They keep getting fined and you wonder when it is going to end. He has been looking at this, but just hasn’t pulled the trigger. There will be a time in the cycle when banks will start to do well and there will be some good upside. His choice in banks, after doing his research, is more in Citigroup (C-N) because they are more behind the curve which gives him more opportunity.

Wells Fargo is the only US banks she holds. BAC had credit quality issues, miscalculated capital ratios and Fed had to tell them they could not buy back stock. She prefers Wells, not BAC, where the dividend is minimal.

The Up trendline, which has been in place since 2012, seems to be breaking down and seems to be consolidating. Technically it is reasonably safe. There are other stocks that he would rather be in, but this is not a disaster story.

(Market Call Minute) Money center banks are the way to go.

Does not make the cut for him. The earnings profile is too volatile for him. But it is a very inexpensive stock. The sensitivity is the yield curve. They don’t make as much margin as they should. He also sees a heck of an M&A cycle. He would continue to hold this. 3-5 years it should be a pretty nice performer.

Paying a $17 billion fine which actually pushes the stock higher. Only $9 billion is in cash. This is not the big issue. The issue is that they are finishing off with all these huge regulatory issues. The fact that they are able to increase their dividend is a sign that the Fed is much more comfortable with their balance sheet. Likes this company because the regional and global economies are recovering. Banks do well in a global recovery. This bank is very leveraged to the retail business in the US. Trading at 0.7X Book. Reasonable dividend yield. Expects their capital ratios are going to explode over the next little while, and they will have to buy back more shares or increase their payout ratio.

Have a big settlement coming with the US government. Also, had a hiccup filing their capital plan, where they were originally approved and then had to refile. As a consequence they are not allowed to do a buyback, but are allowed to raise the dividend. There are still some headline risks. Over the next 1.5 years, where he thinks the market will start to discount higher rates, this will be positive for the big banks. If you are willing to look further out, US banks are still cheap. He prefers Citibank (C-N).

Likes this. Sold his holdings recently when it ran up into the $16-$17 area, but is looking at a point for when to buy it back. There is earnings potential in the $1.80-$2 range. Still a lot of costs they can cut and can generate some earnings growth.

Bank of America (BAC-N) or HSBC Holdings (HSBC-N)? This is one that is not of interest to him. He doesn’t care for their business model. In the US, he prefers regional banks that make their money through loans in their region. He owns some HSBC, and is looking at this as a possibility for the rest of his accounts, as it gives European and Asian exposure.

Trading below Book Value. Currently trading right on the cusp of being in a condition of being rejected by the market, and being accepted by the market. If it can break through about $17-$18, the stock has a terrific run ahead of it.

The only financial that he owns is Goldman Sachs (GS-N). Expecting that over the next year or 18 months, he will have more of an exposure to the money centered banks. Feels that we are likely to see some inflation entering the economy, and for that reason we are likely to see the yield curve steepen, and banks will make money the old traditional way, lending long and borrowing short and lending long.

Likes the US financial space in general. Valuations are below long-term averages. Has been beaten up a little with regulatory issues and low interest rates, but those will change. Hopefully, next year, the regulatory issues will be less and interest rates will be higher. The economy should have picked up even more so. He prefers Citigroup (C-N) and J.P. Morgan (JPM-N). (See Top Picks.)