Wells Fargo (WFC)

The CEO has retired early today after the close. The market was up in aftermarket trading. This one has issues and there is no more increase in the multiple. You have to pull in your horns on US banks. He would like to see the quarter come out on these banks so you get a sense.

Even though he is not super bullish on financials, this would probably be a good risk/reward if you don’t already have something. The long-term chart is pretty good.

Don’t add to position here. You have a company in crisis and you want to go back to fundamentals. If nothing has changed then you have a great buying opportunity. She would not make this investment without having more information.

History has shown that when you have solid, great iconic brands like this, that when they fall into trouble you are going to be fine long-term. This is going to go where all the US banks go. They have headwinds in terms of low interest rates, but are very, very cheap.

He has been getting out of it slowly. It is time to move on. They were stung recently by the news that 5000 employees have been making fictitious accounts. They can fund their entire loan book with deposits. There is not enough upside to compensate for owning a US bank due to currency risk.

There has been some recent controversy because of alleged sales practices, but believes that 5-10 years from now, everybody will have forgotten that. First of all, people were concerned about the derating of the loan book, and that was followed by the controversy of those sales practices. However, the reality is that they are in a position that is not really under their control.

The government is making an example of this bank, and for good reason. It has taken the stock down from $50 to $46. Ultimately he likes financial services in the US. Are there going to be bigger implications or is this an ongoing problem? He is guessing not, but if he is picking a bank to Buy today, he wants to buy things that are working from a price perspective as well as fundamentally, and would probably prefer Bank of America (BAC-N), or in capital markets Morgan Stanley (MS-N).

This has been a huge beneficiary from the expectations of higher interest rates. It is possible that those expectations get dashed again. If so, it would not be a bad idea to harvest some profits, but he would not Sell all. If you are looking for an entry point, wait for the probabilities of September interest rate hikes to get dashed away.

He likes banks in the US, however, this one is over 50% in retail banking, which is really dependent on net interest margins. Even if they raise interest rates in Nov/Dec, it is difficult for this bank to move forward very nicely in terms of the stock price, if interest rates aren’t significantly higher. He would rather look at names that are in the brokerage area, whether it be investment management or wealth management. This is trading at 12X earnings, which is pretty cheap on a go forward basis, but he would consider other names. Trading below its 200 day moving average which is sloping downwards.

(A Top Pick Aug 11/15. Down 11.87%.) A US domestic bank, and a play on the US economy. This bank will benefit as the economy improves. Trading at about 11X earnings, and its ROE is consistently in the 13%-14% range, which is far superior to other US banks. Dividend yield of about 3.5%.

Toronto Dominion (TD-T) or Wells Fargo (WFC-N)? Two excellent banks. He would probably buy TD, simply because you wouldn’t be exposed to the currency fluctuations. They are both excellent, but he expects there will be a little more upside in TD. This is an outstanding bank, and it reports tomorrow. Bank of America (BAC-N) is announcing tomorrow, and might be another one you could look at, other than either of these 2 as it is extremely cheap.

(A Top Pick July 14/15. Down 13.07%.) One of the best managed US banks. Energy is only about 2% of their loan portfolio and is fairly manageable. She still likes this. Trading at about 1.3X Book. Their ROEs are consistently above 11%-12%. Still a Buy. Dividend yield of 3.5%.

If you are going to buy one US bank, this would be it. The loan quality, credit quality and management are superb. However, it is one of the more expensive large cap banks in the US. It depends on your time horizon. Eventually rates will go up. Dollar cost into the name over the next year.

Generally, US banks are cheaper than Canadian banks and have more potential upside, but yields are much lower. He likes this because he likes US housing, which is one of the continuing positive drivers of the US economy, and this is a major player in the mortgage market.

The Fed has flip-flopped everywhere on rate hikes, and US financials have flip-flopped with them. US financials are very, very hard, because the Fed doesn’t know what to do. Until there is more clarity he feels financials go nowhere.