Bank of America (BAC)

(Top Pick Jan 30/13, Up 34.58%) Easy money. Only one cent dividend but buying back 4% of stock. Trading at a discount.

Fresh management teams since the downturn and there has been time for healing their balance sheets. Not perfect, but certainly better and really cheap. Trading at less than BV. The steep yield curve and the housing market are a great way to play a recovery in the US economy and in the housing market.

Doesn’t own any banks because he has found better opportunities elsewhere. He is neutral on banks. Looking at the yield curve and the spreads, it is a tough environment right now. Doesn’t see a lot of fundamentals for strong profit growth. There will be a pickup in lending, which is good for banks. Feels there are better places elsewhere.

Feels there is going to be a time for the banks, but doesn’t think it is yet. Wait for a better entry point, when they are actually growing in a natural way.

(Market Call Minute.) Prefers J.P. Morgan (JPM-N) but would be a Buy if you don’t own a US financial.

(Market call minute.) Thinks you can buy this one.

(Market Call Minute) Prefers BKU-N (regional banks).

Still thinks there is some upside. Just broken out again this week. A lot of the US banks have been consolidating. Could move into the upper teens without too much difficulty. A lot of the US financials have government money in them, so they have that bridge to cross at some point.

Stumbled in Q3 like all the banks, due to the yield spike. In spite of that it still executed very strongly with loan growth up 6.8%. Sees EPS for 2014 over 2013 of 47% and the year after 16%. This is achieved through cost cutting, credit improvements and significant leverage to housing. This is a name that has a strong buyback right now. Will probably be a boost in a dividend also. (See Top Picks.)

Has a possibility of going higher, but over the cycle, he is not a big fan of banks right now. They are making any gains right now on cost-cutting. Loan growth is anaemic. Deposits have been fairly robust, which leads to the fact that they have a fair amount of capital on the books and, guess where they put it, they put it in the bond market in a rising interest rate environment. That is not great.

Continuing problems with lawsuits. CEO has done a wonderful job. Still only paying $0.01 per quarter in dividends and he things that will go up in the next couple of years. Thinks there will be major settlements in the near future.

(A Top Pick Nov 22/12. Up 42.18%.) Still trading at 33% discount on its BV. This is still a Buy. Great prospects. They’ve cut their cost structure and got rid of non-core assets.

Sell Bank of America (BAC-N) and Buy Crombie REIT (CRR.UN-T)? As the long-term rates on US government bonds backed up from November of last year by about 1.5% to almost 3% this summer, all interest-rate proxies backed off in price, including REITs. His long-term view is that rates stay range bound 2.5%-3.25%, so the damage has largely been done. Because of this, interest-rate securities can do a little better here and they are. However, in REITs you have to pick your spot and he would prefer industrial REITs that are more economically sensitive with a little better ability to raise rents, as opposed to consumer REITs, which are more consumer driven. Prefers something like Granite REIT (GRT.UN-T) or Pure Industrial (AAR.UN-T), both of which would be more attractive than Crombie. Bank of America is more of a growth oriented story and you will probably get higher dividend growth but a very low base.

This is in the right group. Has been consolidating. Over the next 3 years, you are probably going to see some very good dividend growth and you will see them take some market share. The most recent quarter was held back along with many of the banks because as rates moved higher refinancing of mortgages went down which was a drag on earnings. Cheap.

They are playing catch-up in terms of valuation. Her preference was not to go to the US banks. Lawsuits are an overhang. It will be higher a year from now if we see improvements in economy and US housing. You aren’t getting the dividends and dividend increases in the US like you are in Canada.