JP Morgan Chase & Co (JPM)

Just reported today, and the numbers were very strong. That speaks to the strength in the US economy and their ability to continue to grow earnings. Hopefully, higher rates in 2018 will bode well for them. Their corporate investing was very strong. Pays a nice 2.5% dividend. Prefers Bank of America (BAC-N), but if you own this, that's a great call.

He loves US banks in general. The outlook for US financials for 2018 is that there are a lot of positive things happening. Rising interest rates are very good for banks and their net interest margins. Deregulation is going to alleviate some of the cost pressures. Also, it looks like tax reform is getting to be a closer reality. This is trading at only 13-14 times earnings. You get paid a nice dividend, and they are buying back shares.

Sell and move into Bank of America (BAC-N)? Both are a play on the US economy and capital markets. Of the 2, she would tend to stick with J.P. Morgan, which she feels has a better management team in place. Both will participate if markets continue to do well.

Banks are taking a breather now. The spread between 2 year and 10 year yields are very, very low. Because of this, the yield curve has flattened, which isn’t an environment where banks do well. However, these are very, very healthy companies. Thinks the banks are a good choice.

Their revenues are highly tied to interest rates and since we only expect 1 increase in December and 3 next year she is only looking at 7% earnings growth next year. She prefers BAC-N, which she owns.

It is an excellent vertically integrated financial services company: capital markets, retail banking and wealth management well. The valuation is on the higher end today but is a good long term hold. He would be more interested at 10 times earnings.

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.