Citigroup Inc. (C)

A too-big-to-fail bank that they continue to recommend. They have been able to get 13-14% ROE through every market gyration following the 2008 financial crisis. Their business strategy is more conservative today and the multiple trades at good value. He expects the dividend to continue to grow and the PE is only 11.4. Yield 2.4%.

You won't go wrong with Canadian banks even though they are more expensive than US banks. C-N has never really recovered from the financial crisis. He would prefer BNS-T because it is a more stable business

(A Top Pick Aug 4/17, Up 6%) He has had good returns since he has bought it but it has gone flat. They have room to expand their dividends even more. They are on an aggressive buy back program. If the US equity markets are going to go higher it has to be with the financials. He is still staying with it. There is about 9% upside according to model price.

Comparing this to Citigroup: he owns both stocks. Both came out of the 2008 crisis in worse shape than the other large money center banks; both have recovered substantially and are trading at a narrower discount to them now. He expects the gap to close further. Citi trades at a greater discount and has more upside potential. The CEO at Citigroup keeps his head down, working on the company’s business. He doesn’t show up much in the press reports; he just does a good job. (Analysts’ price target is $83.04)

He likes the US banks. He sees good valuations here. There is a strong economy and strong credit growth. This will help fuel this stock. It is a good buy.

BAC vs Citigroup: He feels BAC will go much higher. He likes it for its Merill Lynch investment banking and portfolio management side. There's nothing wrong with Citi and it too will do better. He would add to his BAC position. He thinks U.S. banks in general will have another run.

(A Top Pick July 11, 2017. Up 6%). The too-big-to-fail banks have finally recovered and the market trusts their balance sheets. They have given dividend increases and just passed the stress tests. His model price shows a 6% upside but they need to perform well again before rising further.

It's trading 5% below book value. Its international component concerns investors. It has universal buy signals on Wall St., but his concern is that it hasn't corrected enough for him to get stopped out of it.

(Past Top Pick, June 29, 2017, Up 0.4%) The U.S. financials have slipped since the January peak, but he'll continue to hold this. Trading at 0.9x price to book, one of the cheapest among its peers. Last week, they passed their stress test, and said they will raise their dividends. Also, they will continue to buy back shares. But if the tide changes with a U.S. slowdown, this will get hurt. But it's good for now.

(A Top Pick August 4, 2017. Down 4%). This rose to $80 in January and is down to 65.52 now. It is struggling at EBB-2, well below his model price ($73.97). The US stress tests will come out this week. He expects dividend increases, which is essential for this stock to move higher. The company pays only about 20% of its profits, compared to 40% at Royal Bank. So he expects a pop soon. However, he thinks that what is happening in Europe will affect American bank stock prices. The European banks are at multi-year lows. However, the large American banks are very well capitalized and in much better shape than the Europeans.

(A Top Pick May 29/2017, Up 10%) Still likes it, though it’s underperformed YTD. Â On the narrower spreads, bit of a misplaced concern, since banks are still able to lend at more attractive rates. The banks are benefiting from a strong global economy, financial deregulation. Don’t think yield will completely flatten. Rising rates and strong US housing starts will benefit US banks in general.

Earnings have gone up significantly, trades at less than book value, stock buybacks, increased dividend with more to come he thinks. Will continue to benefit from rising interest rates, deregulation, strong US economy and housing market. Earnings growth expectations significant over next years. Good way to play rising rates, cheapest of big US banks. Has been out of favour, but doing a good job in capital allocation and growth. (Analyst’s price target is $82.89.)

Comments on US banks are fairly consistent. Had big runs last year. Short term results have been a little disappointing. Are good long term buys.

He decided his firm's best bet was to position themselves in the area that had the most damage in '08/'09 so their multiples were a lot less than the senior players. Over time he felt there would be a journey of forgiveness – they would earn it from the markets. This is exactly what has happened. It is still trading below book value.

Last year, there was a lot of optimism for U.S. banks. The market got ahead of itself with the deregulation promised by Trump. Currently, Citibank is trading at decent levels and this is a good time to get in. Mortgages may soften, so that
may be a headwind.