Bank of America (BAC)

(A Top Pick Dec 27/12. Up 48.74%.) Still likes and still owns. US banking is a great sector to be in. Cheap relative to Canadian banks. Has good growth coming and the steepening of the yield curve is going to help them.

He likes the financials. It is a question of where is the best relative value. Quite international and quite diversified across the 3 core businesses. It will benefit from the US recovery. Prefers this to C-N. Prefers the US banks over Canada.

Strong investment banking. Rising net interest margins. They are really executing on their Merrill Lynch assets. Good long growth, good deposit growth, good expense control and lower provisions for credit losses. Their capital ratios have never been better. Buybacks continue.

The market is trying to connect to the balance sheet. He would Buy this stock and hold it for 4 or 5 years. Closed at $16.43 and his model price is $18.79, a 15% upside. He suspects, hopefully in March, that they can start paying dividends. When the dividends start flowing, obviously that will attract a whole bucket of capital from investors looking for yield. (See Top Picks.)

In the early part of the year, there will be another government run stress test on capital ratios. There is a lot of capital on the balance sheets and so far they have only been able to tinker a little bit with buybacks. If the government is comfortable with a stress test, there may be an opportunity to return some of the capital back to shareholders in the form of dividends. Given investors’ appetite for dividends, this will probably be a good catalyst for the share price. She sees improving ROE’s.

Would probably be his 4^th pick among US banks. His preference is J.P. Morgan (JPM-N), Goldman Sachs (GS-N) and Wells Fargo (WFC-N). This bank got absolutely crushed coming out of the recession. It’s on the long road back and is tempting to think that it could become a $50 stock again. If you own, he would trade up in quality to one of the 3 previous ranks listed.

His target price is $35 so it has a long ways to run. Thinks there will be a dividend increase, either this year or next year, which will move the stock. Still on his Buy list, but before his next letter, he will have to decide if it should be rated as a Hold. Still thinks this could have double left in it.

Haven’t got a dividend yield as they have to get approval from the federal reserve each year, so her preference has been to stay with Canadian banks. US economy is recovering, which will be good for all the US banks. Prefers Wells Fargo (WFC-N) which did some acquisitions prior to the recession, which nicely positions them for growth.

(Top Pick Jan 30/13, Up 45.42%) Decided to do buy back instead of dividend. You get a lot of growth. A lot of Country Wide’s mortgages are turning positive again.

There is a little bit of a base between $15-$16 and if it broke below that level, he would be concerned that there is some bigger trouble brewing. Chart shows a nice upward trend. Financial seasonality is just about to start.

US banks have a lot of potential. If he had his choice, he would probably go with CitiGroup (C-N) over this. Citi has really quietly reorganized. Have brought a lot of their international exposure back domestically.

(A Top Pick Dec 27/12. Up 36.98%.) He can see the same performance repeated in 2014. Trading at only 8.8X book. They are so over capitalized, that they are going to be buying back shares and increasing dividends for the next 2-3 years.

Probably won’t rocket higher until they announce purchase of stock. Prefers to have a dividend, but you can’t go wrong with any of the group. He is buying US financials.

(A Top Pick Jan 30/13. Up 20.1%.) This was to Buy the Jan 2015 $15 Calls at US$1.79. His strategy on this was that he thought this bank would be significantly higher than it was in July. There have been some positive gains, and he would just continue to Hold. Thinks this will be well above $20 next year.

Trend is up and was recently tested and so far looks so good.