Bank of America (BAC)

(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.

If this bank was going to fall over, it would’ve been seized by the regulators before now so it is a relatively safe investment. If you put the money in now, you will be well rewarded over a 3-5 year period.

Any of the banks are sells. He is not ready to buy banks. Any success if coming off cost cuttings. Not a lot of catalysts. Things change but now he would pass on banks. He has a position in Goldman but it has a different metric. Regionals are in fund but underweight.

Wait for $15.78, EBV-3. Model price $16.72, 16.5% upside, but wait until it goes over EBV -3. It could stay under this point for quite some time. It should do well over the long term.

Some of the US banks are quite attractive over the next 2 to 3 years. He looks for rising dividends and thinks the US banks will have an opportunity for accelerated dividend increases. Thinks this is attractive for this reason. In the near term there is some risk in the earnings based on refinancing of mortgages held back because of rising interest rates. Doesn’t think it will last. It is realatively early here.

Has gone through a lot of the turbulence that the rest of the banks have had. Feels the less senior banks, such as this one, offer more upside given a very stable economy but, of course greater reward comes with more risk. Still trading at less than tangible Book. All of these banks are making money on cost cutting because there is really no solid revenue generator for them. Yield curve is fairly flat so they can’t make money off the spread as they traditionally do. It is generally tough time for the banks, but it will always be so.

(A Top Pick October 30/12. Up 54.12%.) These stocks are cheap. Trading below BV. Doesn’t have a big yield but it is buying back stock. Well-capitalized.