Morgan Stanley (MS)

The capital markets banks are all performing really well. That tells you something about the rest of the market; if investors are focusing on these banks, then they must have a view that lots of deals will be done and that capital markets provide a good opportunity. This name is more investment management than trading, but still very attractive.

Had healthy top and bottom line beats. All three divisions beat. Wealth management is seeing huge inflows. 

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.

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%.

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.

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.

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.

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. 

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.

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.

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. 

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.

They just delivered a strong Q3: +56% investment banking YOY, 22% equity trading YOY with an efficient 72% expense ratio and 17.5% return on common equity, a major beat. The wealth management business is booming with $64 billion of new assets.

They report Wednesday. Bears kept tearing apart their wealth management business, but investors buy on any weakness. Pays a 3.5% dividend. Hold on.

An investment-focused name. Bit more leverage, bit more beta. Likes this space, but it's not as conservative as the money-centre banks.