JP Morgan Chase & Co (JPM)

Helped by QE. It is making its way to the banks but not getting through to the economy. They are in good shape to win some market share by way of loan growth. They have a strong balance sheet. They can make their dividend. There may be growth in it and they may institute their share repurchase plan. Revisions of earnings continue to go higher. You want to see fundamental characteristics and price characteristics that support the view. In this case you have good fundamentals and positive price performance so the wind is at your back.

(A Top Pick Oct 11/11. Up 37.77%.)

If the FED has shot their last bullet with QE2 to infinity, then what can they do next? This is the best in breed. What happens when we have the inevitable correction? Wait for a pull back. Don't chase strength at this point. The markets are okay for a couple of months yet, however.

He is basically out of all US financials. This has been on a pretty strong run, aided and abetted by all the US policy moves. Feels there is still a number of risks in US financials.

Good indicator of bank valuations is Tangible Book Value. This one, as with all the banks, looks attractive. Trading at about 75% of Book and about 85% of Tangible Book. Probably the best of the breed in US financials. A couple of things to worry about is that banks generally make their money through the steepness of the yield curve i.e. they borrow short and lend long. With such as shallow yield curve, there is not that opportunity. Looks like the yield curve is going to be shallow for some time. Margins are dropping and they are also not really lending money. Not a lot of growth here.

Gaps really do matter because they represent a capitulation. People were outright panicking, an emotional response and it is an over-reaction. The banks are breaking out and do look okay, although it may not last. Stay with it for the time being.

It was disappointing to see a company that had managed itself quite well through the financial crisis and then get hit with the London/Whale issue. He is looking at this one.

Thinks you could enter this one at these levels. Cheaper than Goldman Sachs (GS-N) and has a higher yield as well. Wouldn’t put a whole lot of money in. Use some of your more speculative money.

Just started buying this. This is a value pick. Trades at considerably less than its tangible value. Very low PE. Dividend is over 3% and has a lot of capacity to rise.

With banks, he looks at the total size of the balance sheet. History shows when banks get over $1 trillion US in assets, they have pretty much cross sold every product in every market where they could possibly hope to have a competitive advantage. To grow beyond that they start to get into more and more exotic business lines and get away from the risk culture that got them to that size in the 1st place.

Great company but had a large but solvable problem. The problem was the trading loss which wiped out a lot of the market value. Trading at an unbelievable cheap valuation compared to the Canadian banks. Raised its dividend in March. US banks look very attractive and have a nice tie to the housing market. Earnings are at record levels. Think they'll do a big share buyback.