JP Morgan Chase & Co (JPM)

He has been trimming his position because it has been doing quite well. It pays a nice dividend and they recently reported a good quarter. It is a little more expensive than it used to be. It is at 13 times forward earnings and it reflects the benefits of reducing regulation and rising interest rates. Some of that good news is priced in. He has reduced his position size to some extent.

(A Top Pick November 22/16. Up 28%.) This could be another Top Pick today, if he hadn’t chosen it 3 times in the past year. Financials will benefit from a reflation cycle, probably for 5-6 years. US financials are trading at about 1X their BV, and have traded as high as 3X in the past. The best bank in the US.

(Top Pick Oct 17/16, Up 44%) Financials are a big weighting for him. There is a multiyear theme in financials ahead of us. He likes capital markets and net interest margins growing for most of the banks. The US banks are one by one starting to break out of consolidations after the election last year.

(A Top Pick Feb 17/16. Up 61%.) Their investment banking arm has done incredibly well. Their trading arm, even though they had soft numbers over the last year, has done well.

Bank of America (BAC-N) or J.P. Morgan (JPM-N)? He would give a slight nod to Bank of America because it is cheaper. Of course, this bank has the standout Banker, Jamie Diamond. He has nothing bad to say about this bank.

He is a big fan of management and the business. Their latest quarter was excellent, for one main reason; every sector of the business is firing on all cylinders. Also, the board just approved the quarterly dividend being increased by $.56. They are basically going to return about $21 billion to shareholders over the next 12 months. Dividend yield of 2.2%. (Analysts’ price target is $96.)

They had the most profitable quarter of any bank anywhere in history! (in its most recent quarter). 10 years ago it was on the ropes. Its ability to pay dividends or buy back shares was constrained by the US government. It has a dynamic and smart CEO now. It has its fingers in pies all over the world. How can you not like this story?

This is best in breed. A phenomenally well run franchise. You have to think of this in 2 components, capital markets orientation and balance sheet lending and deposit institution. Doesn’t believe we are going to get a super yield curve. He does like the capital markets business, so instead of J.P. Morgan, you might want to look at the iShares D J Broker-Deal ETF (IAI-N), but it is tough to go wrong with J.P. Morgan.

(Top Pick Feb 17/16, Up 63.33%) US banks are too cheap, 1.5 times book value, half that of the Canadian banks. Dodd Frank will probably be pulled. Interest rates are going up and that is good. Tax reform will be problematic. So he thinks it is still relatively cheap.

Just reported earnings which were very strong. They guided down for net income margins, but at the end of the day, all the analysts raised their earnings price target for this year.

*Covered Call*. The company had blowout numbers. Thinks the stock is going to go through $100 before the end of the year. He did a $97.50 Call.

(Market Call Minute.) This has done a very good job. They came through 2008 as one of the best of the banks. A higher multiple bank, trading at 1.4X BV. He would probably go with some of the other banks instead.

An heir apparent has just left the company, so it raises the question of succession for Jamie Diamond. The management team is extremely robust. This company gives you diversification and the balance sheet. Auto lending in the US will need to be paid attention to when looking at financials. These are excellent operators in execution. Financials have just started to turn, so now might be a little early. Make sure this is not just a snap back rally.

He loves this. It has been able to compound BV at 7%-8% a year and he sees this continuing. There is a lot of positive tailwind. If Trump is able to get the Dodd Frank repealed, there will be an instant 10% move in the US banks. If you get tax reform there will be another move in the banks. Higher interest rates will create another move in the banks. Inexpensive. Trading at a below market value compared to the S&P 500.

This probably has one of the best financial executives on the planet running it. Also, there is the potential of regulatory reform, the weakening or getting rid of the Dodd Frank which is going to be helpful to a lot of the banks to undertake more growth initiatives.