Bank of Montreal (BMO.TO)

(A Top Pick Sept 23/14. Down 5.8%.) All the banks have had a really difficult time except for the CIBC. This is terrific value.

(Reset Preferreds (Y) 33) These are resets, and are not going to be reset until 2020. Yield is about 6%. They have come off since their original issue price, which was June 2015. Nice yield and no reset. Thinks that when the reset does occur it will be at a higher value. This gives you a hedge against rising interest rates. If you didn’t want a reset, an alternative would be iShares DEX Floating Rate (XER-T).

Earnings period is the end of November/beginning of December and is the end of the period of seasonal strength. You can ride it out, given the high yield.

Moneris is about 12% of their revenue. It is a piece of a much bigger puzzle. That asset is incredibly valuable. The return on equity is incredibly strong. It should be talked about, but isn’t. It is only 12%, though.

They are fine and safe, but they have mid west US exposure, compared to TD’s east coast. It is not on his list of banks when they are ranked.

The trend for Canadian banks has been down because of a number of factors. There is a perception that there is a housing bubble in many parts of Canada. He thinks that is an overblown assumption. The other negative perception is that weak commodity prices will negatively impact bank earnings, but their exposure to energy lending is very small. Thinks that most of the damage is done and the remaining downside, if any, is at 5%. As a risk/reward this is a pretty good time to be buying the banks.

Bank of America (BAC-N) or Bank of Montréal (BMO-T)? He feels the US economy is going to grow a lot faster than the Canadian economy. This will benefit their banks. However, it is hard to go wrong with a Canadian bank from an income point of view. Canadian banks’ income is taxed at a lower rate as a Canadian dividend paying group of companies. Also, very well-regulated and very well-run. This one is a very good bank.

A well run bank. Gaining share in Canada. They have a presence in the US Midwest. He has TD-T and CM-T. As long as we don’t have a lot more loan losses coming out of the west, the next two quarters should be good.

Sell Puts and Sell a Covered Call 6 months out? This is a very common strategy. What the sale of a Put does is to obligate the investor to Buy the shares of the stock. For example, let’s assume a stock is selling at $75 as share and you sell a $74 Put. You are simply agreeing to buy the stock at $74. That is no different than putting in a limit order. The difference here is that you get paid a premium to wait. People get into trouble with this strategy when they don’t have enough funds to buy all of the stocks that they write Puts on. It is the leverage that causes the problem on the strategy, and nothing more. Nothing wrong with the strategy.

He does not mind it here. It is okay. They have a good dividend yield. The risk is that we have a recession that causes a consumer recession and then loan losses come back and bite them. He prefers US banks. He prefers TD-T and RY-T and then perhaps NA-T in Canada.

(A Top Pick April 16/14. Down 8.94%.) Short and Long Guardian Capital Group (GCG.A-T).

Royal (RY-T) or Bank of Montréal (BMO-T)? His 3 biggest holdings are National (NA-T), Toronto Dominion (TD-T) and Bank of Nova Scotia (BNS-T). On a valuation basis, the cheapest is National which is trading at 10X next year’s earnings. On this, pick 1 or 2 banks, and never sell them and then go from there.

Hasn’t owned this for a very long time. Has never had a really good feel for this over the years. It had very high expenses which has hurt its margins over the years, more so than any of the other Canadian banks. It tends to lag. His preference is Toronto Dominion (TD-T), Bank of Nova Scotia (BNS-T) and Royal Bank (RY-T).

Has set back very nicely to a very favourable level to purchase and has a nice dividend and a big upside potential. He buys the cheapest bank he can find.

(A Top Pick April 16/14.) (Short) Long Guardian Capital (GCG.A-T) and short Bank of Montréal (BMO-T). This and Guardian could both go up in absolute value, as long as your Long position goes up more than your Short position. It’s all about the relative movement between the 2.