Citigroup Inc. (C)

Banks in the US are much better capitalized today than they were many years ago. Thinks there is value in various parts of the US financial sector, whether its a small niche bank or something like US Bancorps (USB-N). A lot of money is still being spent on cleaning up past messes. They have much better capital ratios now.

Citigroup (C-N) or Bank of America (BAC-N)? Of all the big banks, these are the most opposite, Bank of America been much more locally focused and Citi has a big contingent of emerging markets. With both, a lot of things are going right in their domestic franchise. They are struggling with all the things everybody else is struggling with. Where this might have a bit of an advantage right now is that emerging markets seem to be turning. From that perspective, he really likes it.

(Top Pick Apr 9/15, Down 19.38%) A lot of its growth came from outside the US and that has now hurt it. Long term he likes the name.

Citigroup (C-N) or Wells Fargo (WFC-N)? There are very large differences between these 2. This one has a lot of exposure to emerging markets, which he is not keen on. Also there is a lot of fixed income trading.

Likes US banks. Have underperformed this year. He doesn’t worry so much about the downside. Disappointment for them has been the lack of increases in interest rates. Loan growth has been slow, but with valuations and discount to BV, and starting to bring dividends back in, he thinks we have seen the worse of the financial crisis. This one has great international exposure and have done a good job of bringing down costs.

Owns a little. Has a preference for some of the large US cap banks, the money centres, where he is optimistic about the underlying loan growth, both with respect to consumers and corporations. Consumer and corporate balance sheets in the US are very strong. You can reasonably expect mid single digit loan growth, approximating 3%-5% during the next couple of years. The big issue is because the 10-year interest rates have gone down. Banks typically make money when interest rates go up, because they can lend it out at higher rates. Valuations on US banks are very compelling when you look at them on a historic basis.

Citigroup (C-N) or Bank of America (BAC-N)? Trading at .6 to Tangible Book which is extremely low. It has been low for a while, but that doesn’t mean it can’t go lower. Everybody has been looking for a catalyst in this group. The consensus is that higher interest rates will do it. A 1% rise in interest rates will create billions of dollars of net income for these banks. He likes this bank’s leadership.

You have to look at what exposure you are looking at capturing. They capture 50% of revenue from consumer banking. He tends to be less attracted to investment banking. He likes the meat and potatoes perspective with consumer banking. He prefers the regional banks. KRE-N is an ETF of regional banks, but he prefers to allocate capital to specific banks.

Bank of America (BAC-N) or Citigroup (C-N)? His calculations indicate that the balance sheet of both banks are impaired. The stated assets aren’t worth what the balance sheet shows. They are better than any of the European banks, but thinks they are just far too big. Each of them have $2 trillion of assets, and the market is just not liking them right now. On any inflation, these 2 will feel it more than any American stock. His model price on this is $57 and this is trading at $41.05.

Bank of America (BAC-N) or Citigroup (C-N)? Prefers Bank of America.

Bank of America (BAC-N) or Citigroup (C-N)? The real driver is what interest rates are going to do. Stock had been performing pretty decently on expectation that the Fed would continue raising rates, but the Fed started reversing course. There were also fears of debt problems. She still prefers to own banks at a fraction of their BV, even if that comes off a little. A pretty good cushion here with trading at a fraction of BV. If one does well, the other will do well also.

Looking at the long-term chart, this has been flat lining since 2009. However, prefers it over Bank of America (BAC-N). Not something you need to own, but also not something that scares him. Where the financials go, the market goes, but it hasn’t been that way lately. If financials are not moving, he is very concerned about the market.

(A Top Pick Feb 25/15. Down 23.33%.) A great opportunity. Trading at 60% of tangible book value, which is something he has not seen in his career, and at about 7X earnings. With any increase in rates, they are going to put a lot of earnings on the P&L. Dividend yield of 0.50%.

Has been adding this along with some other banks because of the weakness in the last couple of days. Trading at a substantial discount to Book. Valuations have come down and he is happy with this.

Historically US banks start to show positive performance around this time of year, and move higher right through until approximately the beginning of May. Seasonality is clicking in, but technically the stock is in a downward trend and has yet to show signs of even trying to form a bottom. Has been underperforming the market and is trading below its 20 day moving average. Short-term momentum indicators are negative. Not a good one to buy. Wait until there are signs of it bottoming.