Bank of America (BAC)

US banks have done a pretty good job of recapitalizing. Doesn’t expect tremendous growth but certainly BAC is a beneficiary to the housing recovery. There may be another round of dividend hikes after the stress tests.

(Top Pick Nov3/11, Up 37.84%) If it gets over $10 then a lot more institutions can buy in. They want to increase the dividend. If economy tanks they will have trouble again.

There is a chance that this could have rapid earnings growth because it is coming from such a low base. It may do quite well. Wouldn’t be one of his top picks in the US banks. If his thesis on US housing is correct, all the big US banks will benefit. Prefers Wells Fargo (WFC-N), which is a more direct play on US housing. This one is more of a recovery play so if you believe in a strong US recovery, you will make more money on this one. He prefers buying for the long-term.

Internationally it might have some trouble with its overseas operations. Domestically they will do well if the housing market continues to strengthen. Would look at some of the safer names such as a Wells Fargo (WFC-N) or Goldman Sachs (GS-N).

BV is $20 and the tangible BV is $14 so it is trading below Book. People don’t like the guy running the company that much but he has done a very good job changing the company. He is making it a better company, a smaller company and cutting out costs. In the next 5 years, they are bringing down costs. The key to this story is that loan-loss reserves are coming down in the US and loan losses are coming down. US housing market is healing itself. Owns 10% of all the deposits in the US.

Bank of America (BAC-N) or J.P. Morgan (JPM-N)? Looked at both in the summer and decided on J.P. Morgan after the “London whale” incident when the stock fell. Also, J.P. Morgan has a dividend and at better balance sheet. Also, they are allowed to raise their dividends. However, doesn’t think you can go too far wrong with this one. Improving US housing market is good for all of their banks.

Certainly the bigger picture is Up but there is a little bit of overhead resistance that is coming up. It could be called an ascending type of triangle where there are a couple of peaks at around $9-$10. He prefers buying from breakouts on necklines. If this one breaks out through $10 with some volume and lasts a few days, he will be quite bullish on it.

(A Top Pick Oct 4/11. Up 56.28%.) Have done the settlement now of $2.43 billion that they were going to have to pay. This now gets it off the table. Management is doing a tremendous job of turning around the company. He can see this one possibly doing a quadruple but it could take years to do it. Still not completely out of the woods. Their acquisitions of Merrill Lynch and Countrywide could turn out to be good assets within the next couple of years.

Thinks they did well in buying Merrill Lynch and acquiring some good financial assets. Like all US financials they benefited from all the stimulus, Tarp programs, etc. There is a risk element in their debts.

We are in a liquidity induced rally at this point and a lot is going to depend on economic data that comes through the course of the fall. Currently US banks are benefiting. He will continue holding his position as long as this rally stays intact.

From a structural point of view, they are in much better shape than European banks. There are improvements in the housing market and declines in unemployment rates. If you use the banks as a proxy to the US economy, you will see growth coming through the banks. For a longer-term higher risk strategy, with a probable good upside this is okay but a regional bank may be a better alternative. He would suggest BB&T (BBT-N) which has a 2.4% dividend.

Likes US financials. Economy is healing, which enables the companies to actually get out of the situations they were in. Loan-loss reserves are coming down. Nonperforming assets are being reduced. Becoming a smaller but better bank.

Prospects are quite good. Replaced much of board yesterday, which was a good thing. We have excellent banks in Canada so there is no reason to go bottom fishing in the US. There are too many disruptive practices coming into the big banks in the US.

(A past Pick Aug 10/11. Up 21.3%.) Still likes. Cautionary in that there is a lot of stuff in there that you have to analyze. If you believe the US housing market is stabilizing and the US economy is growing, this is probably worth more.

5-10 year long-term hold? Longer-term, the banking system has a longer time to repair and get back to its days of old. Obviously, the housing system at some point will repair itself. He would rather pay a higher price for a lot greater certainty.