Goldman Sachs (GS)

The premier investment bank in the world, trading below book value and is an incredibly well run company. Retail banks have a very cheap source of funding. GS-N does not have that.

(Top Pick Sep 30/14, Down 3.87%) They are learning or re-learning how to be a company in the current environment with a sustainable ROE, which they moved to above 10%. They are getting traction. They are still at 1 times book and should be 1.2-1.3 with the current structure.

Financials are a natural winner. If you think investment banking is going to continue to expand then this is a natural beneficiary. It had a natural pullback and you should buy it here.

The premier capital markets business globally. Mergers and acquisitions right now are coming at a very rapid pace and they are big beneficiary of that. Increased volatility is good for trading revenues. The legal environment is starting to get a little bit better. Dividend yield of 1.27%.

(A Top Pick May 9/14. Up 29.25%.) This is a huge power in underwriting and investment banking in the US. Have always had a terrific record of proprietary trading, also make some money in commercial lending. The climate for offerings in the US really good, so they are making a lot of money on that side. The volatility in the bond market is good for traders. They raised their dividend.

It is probably the best investment bank in the world, and they passed their stress test so they could increase their dividend. He also expects share buy backs. Buying back shares when at book value is a very good use of capital.

If looking to invest in this bank, you really have to ask yourself “what is the exposure that I want to achieve?”. Some US banks have exposure to the retail consumer, and this one would not fit. Very heavily dependent on merger and acquisition and wealth management. He prefers to play the consumer in the US. You could do this through Bank of America (BAC-N) or Wells Fargo (WFC-N). He prefers to play this through regional banks such as National PA Bancshares (NPBC-Q), as not all regions in the US are recovering at the same pace. (See Top Picks.)

(A Top Pick Jan 2/14. Up 6.07%.) Trading right around Book, so it is slowly coming back. Have moved their ROE from mid-single digits into low double digits, so he thinks they have opportunity for expansion of their multiple. It also has its opportunity for organic growth.

This is slowly, but surely going private. They are buying back shares hand over fist. They plan to buy back 15% of the stock over the next year or so. They are also increasing the dividend. They keep surprising Wall Street in terms of earnings, and are not getting a fair multiple for this.

Primarily a capital markets driven company. If you are positive on the US capital markets activity, IPOs, restructuring, etc. this would be a Buy. This is more volatile than some of the larger banks there. She has gone with Wells Fargo (WFC-N) that has less capital market exposure and more diversified lending as well as lower volatility and a more attractive dividend yield.

(Top Pick Oct 21/13, Up 11.53%) Recommended on the premise that it would do a lot of investment banking and proprietary trading and that it could raise dividends. They did all that. It is 1.25 times book value.

3% drop in the stock is fine for a company that has a highly levered balance sheet. It is obviously best in breed in terms of the banking space. This is a money centered banks, so it is very firmly focused in terms of regulation, bank changes, etc. which means that every time there is a sneeze in the market, the regulators are going to be dealing a lot with banks like this. He prefers US regional banks, which don’t have the same regulatory glare.

A company that has been hurt like others in the banking space by low rates and bond prices. But there has been much more volatility in the last few months and that benefits them. They are an investment banker and confidence will lead to deals and they are the preeminent deal maker in investment banking.

(A Top Pick Sept 25/13. Up 16.28%.) As we get further and further away from 2008-2009, these stocks remain very, very cheap, historically speaking. As they come out of that morass, he feels they are going to float steadily higher. Still a Hold.

(A Top Pick Oct 31/13. Up 16.71%.) As the premier investment bank globally, this made a lot of money taking companies public. At this price, you are buying the company at around BV. They will have the scope to increase their dividend once the federal authorities are convinced that their Tier 1 Capital is high enough.