JP Morgan Chase & Co (JPM)

(A Top Pick June 7/13. Up 17.54%.) The investment story here is their wealth management side. Tied for #1 spot with Merrill Lynch. Very strong franchise. ROE should go up, and he thinks they can get higher than 15%. Feels the stock is worth at least $35, if not even more.

What is the advantage of owning this, rather than owning a good Canadian bank? Canadian banks are incredible businesses to own at these levels. From a multiple perspective, Canadian banks trade at 12 or 13 times earnings, and are over 2X book. From a valuation perspective, US banks are trading at much cheaper multiples. Also, people perceive growth opportunities to be much higher.

(A Top Pick March 26/13. Up 17.68%.) Looking back at the last 11-12 years, US bank stocks are very highly correlated to the 10 year US bond yield. This year, with bond yields going from 3% to 2.5%, it has not been good for banks stocks in general. Over the median term, he still sees us in an environment of rising rates, which will be a very, very good thing for the banking sector. (See Top Picks.)

Doesn’t own any of the money centered banks because there are not a lot of catalysts for growth. There is still a lot of litigation going on within the banks. The difference in spreads between long and short rates is very narrow, so banks don’t have the traditional way of making money, i.e. borrowing short and lending long. They are making money by cutting costs, but that can only go on for so long.

Royal Bank (RY-T), J.P. Morgan (JPM-N) or Bank of America (BAC-N)? A lot of part of 2013 for US banks looked fantastic, especially in January. However, something is going on there. There have been more fines with these organizations. US banks have been struggling. J.P. Morgan is better than most in terms of fundamentals. His target price for this bank is right where it is trading at, but it could go to the $83.40 level. He is partial to the US financials.

Prefers WFC-N. You have had a good run in JPM, they had to pay some big fines and the most profitable part, the proprietary trading desk, has gone away.

Sold his bank ETF recently because the good news was out on its earnings, etc. Also, the overall sector was kind of getting close to its top. With a 2 year horizon, you should be fine. In a market correction, if we do get one in the next couple of months, banks are the most economically and market sensitive of the larger cap stocks and he expects there will be volatility on US banks in the next couple of months. He is looking to buy back in at a cheaper price.

Under 10 times earnings. Fingers in all the pieces of the pie. Consumer, business and asset management. Payout around 40% and he sees this as growing. 2.6% yield could be better. Potential for international growth. He hopes the litigation issues are all behind them. Thinks there is less uncertainty with them.

Great franchise. A global investment bank with a very strong retail franchise in the US. Not as cheap as some of the other banks for several reasons including a higher dividend.

Great balance sheet and undervalued. Right point in the cycle to own them. Look better than Canadian ones to some extent.

An absolute profit juggernaut. Makes more money in a year than, he believes, all 6 Canadian banks put together. It is going to make an absolute fortune with the flood of IPOs that we are seeing right now. Thinks they have put most of their legal and regulatory woes behind them, which means that the drag on profits from the fines is over. All the US banks took tremendous reserve hits after the housing bubble because all of the houses had no equity or equity inadequacy to justify the mortgage. Every month that house prices go up in the US, currently up about 12% year-over-year, we are seeing most homeowners coming back into the black.

(Market Call Minute) There are other more attractive financial companies.

(Top Pick Feb 14/13, Up 17.90%) They are in the right group and have some very good assets so should do very well. Thinks you will see better than average dividend growth over the next 3 years.

ZWB is still your best way to play banks considering its covered call overlay. Over 5 years the US banks probably have more upside than Canadian Banks, but more volatility over the next 2. You need to decide if you want dividend safety and so on before making a decision. JPM will trade like the S&P and chop around.

With the Cdn$ at $0.90, he would rather buy a Canadian bank. Currency has swung too far. However, he sees nothing wrong with buying this. Stock will earn well over $6 a share. Thinks all the bad stuff is behind it. Valuation is ridiculously cheap compared to other sectors and to how well their balance sheet has improved.