JP Morgan Chase & Co (JPM)

(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.)

(Market Call Minute.) J.P. Morgan (JPM-N) or Wells Fargo (WFC-N)? He likes both, but in the near term, Wells Fargo has some issues, so he would go with this one.

(A Top Pick Jan 28/16. Up 46.02%.) Even though the stock has had a good move recently, people don’t necessarily appreciate that these banks have been under such a difficult operating environment for so many years. This is still reasonably cheap, and could look even cheaper if the earnings go up a lot.

Theoretically, this is just getting started, but you have to watch out for the mean reversion. It has had a phenomenal run to the upside since the Trump Bump, and has been stretched significantly by the 20 and 50 day moving averages. The 20 day is at about $74 and the 50 day is at about $70. If you get a retracement back to those levels, those have the more positive risk/rewards. Seasonally, financials such as this, tend to do well from about November all the way through to April. Technically this bounced higher from its 50-day moving average. There is support between about $70 and $71.

One of the biggest banks in the world. 75% of their revenue comes from the US, very domestic focused. They are the largest bank asset manager. Have a very significant capital markets business. 2^nd only to Wells Fargo (WFC-N) in consumer lending. They’ve been gaining market share in every one of their businesses. Very good revenue growth, the only bank with a 10% return on equity, and this is in the face of significant regulations. Technically it made the 1^st new all-time high this week since 1999, a very significant technical break out, and it will probably rally for years. Dividend yield of 2.45%. (Analysts’ price target is $77.38.)

This group benefits from rising interest rates, and this is the strong man in the group. 75% of their revenues comes out of the US, so it is really focused on the domestic economy. They have a good commercial banking business, a good private banking business, and a great capital markets business. Have grown their dividend 18% a year over the last 5 years. They are taking market share from their competitors. Exceedingly well run by Jamie Diamond and his group. They don’t pay a high percentage of their earnings out. ROE is north of 10%. Price, relative to the group, has been steadily improving. Dividend yield of 2.86%.

He would characterize this as being the senior representative of the US banking sector. It is the healthiest and has the best reputation. If you want to have a position in the US financials, this is certainly a good choice. On the other hand, if you are looking for some valuation recovery, he would look at Citigroup (C-N), Bank of America (BAC-N) or Wells Fargo (WFC-N).

(Market Call Minute.) If this is one of the banks that you feel you want to own, he wouldn’t have any argument with that.