Citigroup Inc. (C)

A challenged bank, of all the US banks they are doing the poorest. The asset base is the poorest. He would look for someone else to buy.

CEO is doing a good job and concentrating the bank on core efficiencies. They are getting out of a lot of countries and out of risk areas. They go through another stress test in March, and he is quite hopeful they will be allowed to increase their dividend and their buyback. Relatively cheap on a variety of metrics. Trading at about 10X earnings compared to the average bank that is trading at about 13X. Also, trading at about 90% of tangible book value compared to the average bank of 163%. Yield of 0.08%.

This Is his least favourite of the US banks. They really didn’t do the reform coming out of 2008. They were slow to do it. They hung onto legacy businesses. They have a lot of international exposure and this is the thing that he is cautious on. He likes American banks in general.

He sees the greatest opportunity in the US financials in the consumer. The best way to play that is through regional banks. Since 2008 this bank, like the other US banks, has made specific efforts to become more conservative, so they divested of their more risky assets. (See Top Picks.)

(Top Pick Jan 14/14, Down 3.68%) They have a strong month and then they go backwards. They are spinning their wheels. They seem to be fined for something every day. You have to be market weight financials. Does not know when the FED will allow them increase dividend.

(A Top Pick Dec 9/13. Up 4.44%.) This remains a top holding for him. Can see this ultimately as a $65 stock. They have applied to the Fed with a capital plan, which he thinks they get approved in March. That will be huge, because they can start returning the vast majority of their cash flow to investors, in the form of share buybacks, special dividends and dividends.

(A Top Pick Jan 14/14. Up 1.26%.) Coming out of his EBV -3 line in his strategy of “coming out of the blue”. Has $1.9 trillion of assets while Bank of America (BAC-N) has $2 trillion of assets. For the banks that were the most hit in the 2008 crisis, their balance sheets are starting to get to be okay. When they start to perform and use that capital, that tells you that the US is really coming along and getting out of the financial crisis. Yield of 0.07%.

(A Top Pick Nov 15/13. Up 7.34%.) For US financials, he thinks the best is yet to come. They are cheap. They are levered to an improving global economy. Have the whole housing cycle in front of them. You want to own US financials.

(A Top Pick Nov 7/13. Up to 12.43%.) Cheap. Trading at an 8.5X forward earnings multiple, versus the historical 55 year multiple of 15.5 times. Thinks they’re going to get their capital plan finally approved in March, which will allow for quite a bit of that cash flow to come back in the form of a dividend.

They don’t pay a large dividend. Six months ago when they did their capital tests, they had some internal control issues. So it trades at a bit of a discount or cheaper multiple so early next year when they are reviewed again they should be given permission to increase their dividend again. That could cause the valuation gap with others to close.

Just recently bought this. Government charges are starting to wane. Against its peers, this bank is very, very inexpensive. Trading at about 10X earnings, versus 13X for the 40 largest banks. Yield of 0.07%.

(A Top Pick Nov 7/13. Up 4.77%.) Still likes this. Money centered banks have not done as well as expected, but all the litigation issues are pretty much in the rear-view mirror, and that was the big overhang on the stock. They still don't have a dividend to speak of, and that is a big part of the story going forward.

Canadian banks are all trading at around 12-12.5 times earnings this year and around 11 in the quarter next year, with probably single digit earnings growth over the next year or 2. US banks are trading at 10 times. This one trades below Book Value, and the growth outlook over the next 3-4 years is 18%-20%. Thinks we are in for a very long upward cycle in US housing over the next few years.

Timing is always an issue. His choice has been to keep his powder dry in general for now. He would not argue with buying this one and there will soon be a time for these banks over the next three years.

(A Top Pick Nov 7/13. Up 11.42%.) Loves this name. Has been disappointing for the 1^st part of the year. Money center banks have been viewed as the perpetrators of the 2008-2009 financial collapse. Now the litigation risk is behind them they are starting to pay down debt and are raising capital. Also starting to return money to shareholders. Can see 100% of cash flow coming back to shareholders starting next March. Sees $65 in 12 months.