Gordon Reid Morgan Stanley MS-N COMMENT Jan 30, 2018

Investment banks don't get a lot of love because earnings are so cyclical. Investors will put a different multiple on cyclical earnings versus steady earnings. Phenomenal job transitioning to more of a wealth manager; gives a lot more earnings durability. Prefers it to GS. Would not add here, valuation's too rich; wait for pullback.

Excellent company that has owned for ~10 years. Will continue ownership. Very high quality business with strong balance sheet, and ability to generate profits. Management very strong with good capital allocation skills. 

KCE ETF for capital markets was the only ETF in the US that made a new RSI high last week going into the election. Great job building M&A and trading. Very strong wealth management. Technically, a break out. Could pull back, but he thinks there's a ways to go.

The question was on his preference of this group of wealth management companies. He owns all three for different reasons. The possible lack of regulation under the new administration has already boosted them. They are in excellent financial shape and have good dividend growth. It is not an expensive sector.

This week, they delivered a big revenue and earnings beat. Investment banking revenue rose 25% and equity 51%. Strong expense control as seen in their 69% efficiency ratio and bought back $750 million in shares. The sky is the limit for these guys. 

He's most excited about banking de-regulation, loosening constraints as a result of the 2008 banking crisis. De-regulating will loosen a lot of capital, so he owns MS in anticipation.

They announced lay-offs, but no financial advisors. 70% of earnings come from the wealth business. They have a strong balance sheet and pay a 3% dividend yield that's growing. MS is-5% this year. The time to buy.

Friday kicks off bank earnings season, a sector that has been crushed, because Wall Street expects a downturn in the economy. They recently closed a deal at a good price, but there's no other good news. Capital markets have only gotten worse due to tariffs.

Money centre + wealth management (about 50% of total revenue). Accumulated companies over the years. New CEO comes from within. Traded off to a compelling valuation versus its history. Well positioned once we come out of all this. Yield is 3.72%.

A generation ago, their business was fixed income and capital markets. Now, 50% of business is wealth management. They have a toe in the water in capital markets, which should grow in the second half of this year with more M&A activity.