Bank of America (BAC)

Period of seasonality for US banks is from around the 3^rd week in January right through until around the end of April of each year. You could also do this through the SPDR Financial ETF (XLF-N). Technically and seasonally, this is a good investment at current prices.

Likes the financial trade in the US. This one needs no introduction. Money centered bank with global operations that is fixing its operations and is cheap on a book value. It is nowhere near earning its potential on an asset basis. Return on assets was half a percent last year, where it could be 1.5%. It will take some time, but this one has the most upside going forward.

People say you should invest in US banks. They are quite large and are coming off their bottom. This is not the one he would own long term. You should look at how US banks used to operate. BAC and JPM were not ones with a high valuation multiple. Welles Fargo (which he holds) had a high multiple.

Financials are still deep in the red compared to where they used to be, but their balance sheets are 3 times better than they used to be. This bank still hasn’t gotten the go-ahead to increase dividends. BV is north of $20 a share, which is like buying $1 for $0.75.

Thinks banks in general will go ahead and there will be opportunity for them to perform fundamentally. Stocks have done well, but if you look at the banks themselves, they’ve really done well on cost-cutting, recapture of reserves, etc. Loan growth has been anaemic. Until we start to see a steepening of the yield curve and the interest margins increasing, it’s tougher for the bigger banks. He would wait a little until they get a lot of their other issues out-of-the-way. (See Top Picks.)

The case for some of the US banks is that statistically they are much cheaper than Canadian banks. His preferred play among the US banks is Wells Fargo (WFC-N).

Things are coming along nicely for these US banks. They have to get regulatory approval which they have not had yet. There are a lot of good things that can happen to these banks in the next few months. There is going to be a pretty strong move into these banks.

(Is it a mugs game to be trading in and out of these?) At this point you want to be careful of over trading. This bank is going to have some tailwinds as you go forward. Has a little bit of revenue growth and their loan losses keep getting better, bad loans are rolling off and the US economy is getting a little better. Thinks you are going to see them increase dividend growth over the next 18-24 months. They will do well in the wealth management business and their banking business.

(Market Call Minute.) Interest rate spreads are getting very attractive at the banks. They have blown themselves up in the last 5 years. He doesn’t want to own banks because he just doesn’t know what is inside them.

(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.