JP Morgan Chase & Co (JPM)

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 If Trump is able to get the Dodd Frank repealed, there will be an instant 10% move in the US banks.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.

Bank stocks have been a big disappointment so far this year. They’ve been languishing for quite some time. This has all the levers that are needed. Has a total global product set. Dividend yield of 2.34%. (Analysts’ price target is $94.50.)

(Top Pick Feb 17/16, Up 54%) The banking sector has been incredibly cheap. It was about the recovery of the US market. They cut costs. It is still best in class.

They had their Investor Day today and gave a very nice outlook and were very positive about the future. If interest rates go up 3 times in the US, it is going to be like raining money. He wouldn’t be aggressively buying. Doesn’t think you can go too far wrong if you are a long-term investor at whatever price, but at 14X this year’s earnings, versus the Canadian banks at 12X, this would not be his best idea. (See Top Picks.)

(A Top Pick Jan 28/16. Up 62.46%.) Still pretty cheap at about 12X earnings. 2% dividend yield. Not expensive, but earnings are going to go up a lot as we see tax cuts and US interest rates moving up.

The question is when it will get to $100. He has no idea when that will be. They are the highest quality of the banks. They are getting a multiple that reflects that. He guesses it will cross the $10 barrier in the next couple of years.

He really likes this. The best house in the neighbourhood. You have a fortress balance sheet. Great capital return. Any loosening of the provisions of Dodd-Frank will benefit. A loosening from tax reform of the tax rate will benefit. Higher rates will benefit.

What looks positive for them is less regulation. Compliance and regulatory costs are just so significant for banks. They also have a big trading component that had incredible 4^th quarter earnings. As long as we have this environment of pro growth and US investors trade more often, then this could be one of the winners this year.

As these companies earn more money and we get into a higher rate environment we can get dividend increases. She prefers share buy backs.

He loves big financials. People don’t understand that this bank de-levered down to 8 times. If you take your assets, divided by your equity at the height, they were 13 to 1 and are now 8 to 1. They are going to expand their balance sheet. This is the cream of the cream. Dividend yield of 2.3%. (See Top Picks.)