Goldman Sachs (GS)

Financials got rushed. Trading volume this quarter has been lack luster in this sector. Interest rates continue to dip lower. We have not yet had a reduction in regulation as expected after Trump’s election.

He likes a lot of these investment banks and a lot of the US financials. When you own a name like this, you are getting some US institutional and banking business. It is very highly levered to yields moving higher. This looks like it is bouncing off the 200-day moving average. A lot of the US financials have come down and are starting to look very, very attractive.

In their last quarter, they had some trouble with their fixed income and currency side, and he views that as a “one off”. The stock was down 5%. With the proposed US deregulations and tax reform, that would be even more positive for them. There is lots of M&A going on. This is trading at 12X earnings, compared to the market which is at 17X. Feels they will generate growth of 12% for the next 3 years. Dividend yield of 1.4%. (Analysts’ price target is $251.)

(A Top Pick March 2/16. Up 30.36%.) There is still more to go on this. There is a dearth of US companies right now. The number of listed US companies is shrinking year by year for the last 10 years. Expects that this is going to go up towards its high of the year of about $250.

With deregulation in the US he thinks this is a very interesting play. It has come back after Trump got in. Now is the time to get back in. He is continuing to buy on pullbacks. He thinks Trump is going to be able to deregulate the financial industry. (Analysts’ target: $244.04).

You’re not going to get the same type of upside that it had from $150 to the current price. But they are going to make hay while the sun is shining. If Donald Trump has his way, this could be 3 or 4 pretty good years for US financials. (He has a better idea for a Canadian financial.) (See Top Picks.)

They learned to live with regulation and did it reasonably well. They did well under that cloud and now all of a sudden regulation is going to lessen. The IPO and M&A markets should be more robust. (Analysts’ Target $230.08).

MET-N vs. PRU-N. They will get a nice tailwind from a steeper rate curve. He prefers MS-N or GS-N to these two.

One of those companies that will benefit from the financial sector’s push back on the regulatory pressure. They have the highest revenue per employee of all the similar brokers.

He would convert Canadian dollars today. He would do it because of our trade deficit. If you buy in the US then you need to deploy your Canadian dollars now. GS-N just hit EBV -2. $160 is his model price. All the financials have rallied, anticipating a rise in rates. The fundamentals are lagging, but with higher rates you should get higher earnings.

A traditional investment bank, arguably one of the best if not the best. Their business has completely downscaled over the years, with a whole series of initiatives out of the US, to reduce risks. Their revenue, for a large part, comes through capital markets and transaction business, as well as a stable asset management business. A great company, however a very hard stock to necessarily own, because you have all the capital markets uncertainty, pressure on the banks. They are probably the poster boy, whether right or wrong, for public angst. This is something you have to trade a little, rather than being a long-term hold.

The yield is not great – 1.8%. Regional banks have more yield. As a business it has struggled this year, down about 8-9%. You are betting on M&A activity.

This has suffered along with all the global investment banks. They don’t have any serious regulatory issues, but are all suffering from low interest rates as well as regulatory oversight issues, having to pull capital out of trading businesses. The great news is that while everybody else is reducing exposure to trading businesses, this bank is not. There is going to be, and already is, a lot less competition in those trading businesses that they run so well and so shrewdly. Trading at about 10X earnings, a slight discount to tangible BV. Dividend yield of 1.6%.

(A Top Pick July 9/15. Down 21.01%.) He was early on US financials and it is still a relatively small weight for him. At this time, he would prefer to focus on the commercial banks and some of the asset managers. He got Stopped out of this.

(A Top Pick July 9/15. Down 27.52%.) This company is being regulated into the ground, probably for good reasons, but it has changed their business model making it harder for them to generate outsized profits. He got stopped out.