Morgan Stanley (MS)

(A Top Pick Feb 14/17. Up 19%.) Capital markets companies like this are the absolute leaders, and are just breaking out to the upside. This has a long way to go.

(A Top Pick June 20/17. Up 17%.) Its value was based on 2 great businesses, a large global investment manager and their capital markets business, which has been very solid. With the global economy recovering, the US doing much better, and the lower tax rates coming into play, this has been a big win. Thinks it will continue into the next few months and maybe the next couple of years.

This is the #1 equity trader and probably the most successful trading shop today. They are a big beneficiary of higher rates. They hold net cash balances for their clients. Has a giant private client business, $3 trillion in assets they take care of. Dividend yield of 2%. Will also benefit from the deregulation of business. (Analysts’ price target is $52.50.)

(A Top Pick Aug 26/16. Up 59%.) Still likes this, although he Sold a little to rationalize the number of financial service name he had in the portfolio. Trading at 1.3X Price to Book, which is not too bad relative to the peer group. 2% dividend yield. With asset prices going higher and interest rates moving higher, this should help companies like this. They are relying less on trading revenues, which should get them past regulatory changes that may be coming.

Part of the financial sector, which he thinks will be a huge beneficiary for the eventual rise in interest rates. It will be a huge beneficiary from the global economy continuing to pick up momentum. They’ve now made a large bet in the asset management business, which makes a lot of sense, as it is a less cyclical and less volatile business than trading bonds, waiting for IPOs, or waiting for a merger/acquisition deal coming to your doorstep.

(A Top Pick Dec 9/16. Up 6.47%.) Synthetic Long Position. Had Bought a Call and Sold a Put which created a position equivalent to buying the stock itself. US banks have been flat and have been almost dead money for most of the year. This is good until January, so he would hold onto this position.

This has sort of reinvented itself over the last couple of decades. It was primarily an institutional house, a fixed income house. Today, 44% of its business is on wealth management platform. Coming off the financial crisis, they bought Smith Barney from City. Putting those together and growing them, they are now a real force in the US in terms of wealth management. Expects earnings to grow 21% this year and 15% next year. Trading at about 1.2X Book, but well worth it. Dividend yield of 2.1%. (Analysts’ price target is $49.50.)

Has been bullish US equities since February 2016. In the spring of 2017, financials began to outperform. They had a little rest over the winter, consolidated and then had a very strong run up into earnings. This is the #1 institutional equities trader, and stronger equity markets will be positive for them. They are very strong on the wealth management side. Also, it is pretty levered to the US economy. 1.7% dividend yield.

(A Top Pick Dec 9/16. Up 12.4%.) Synthetic Long Position. Buy January 45 calls at $4.90 and Sell January 45 puts at $6.75. At the time, this stock was $43.73 and today it is $45.17, so the stock is up 3%, but the synthetic, assuming $16 a share went into margin, he needed $15.50. A much better way to play this.

An interest rate increase is coming, which is going to be more positive for earnings. Under the Obama regime, you had a very negative regulatory environment over time, and it was very difficult for money centred banks. Under the Trump administration, it seems to be much more positive, and moving forward there should be more upside in US banks.

The leading independent brokerage business, as well as one of the largest money managers in the US for high net worth individuals. A stronger economy, higher rates and more savings by consumers are all going to feed the stock. Dividend yield of 1.7%. (Analysts’ price target is $48.)

(A Top Pick Dec 9/16. Down 1.85%.) Synthetic Long Position. A play on financials and is still bullish on them. This is synthetically the same as owning the stock, but much more tax advantaged for a Canadian holder.

(Market Call Minute.) Of all the investment bankers, he would prefer J.P. Morgan.

This is 2 companies in one. One is the investment bank, which is very well-run and a very good business. The other is the financial services business, which is not very well-run. It is a shrinking company and the revenues keep going down. Given the problems with the financial services division, he doesn’t like this bank.

Because this is a broker/dealer, this is going to be more dependent on the financial markets. Because the financial markets and the US economy is doing well, this one should do well also. He prefers the larger money centred banks with a very large deposit base and consumer lending business. There is nothing wrong with this one, but he would suggest taking some of your money out and moving it into one of the money centred banks.