Stock price when the opinion was issued
He wouldn't buy the covered call. If you like American banks, buy them individually. He would rather buy ZBK which is a play on American banks without a covered call. Basically, you're paying a premium for covered calls..
Higher rates can be good for the financial sector.
The main concern is whether rates push us into recession.
Certainly a possibility, but right now the economy is much stronger than most expected, and thus banks should be OK for a while.
At some point, the narrative is going to shift from higher rates to corporate earnings, and corporate earnings have been OK.
ZBK we think can be held, but like any equity is not risk-free.
We think holders should have at least an 18 month timeframe here.
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He's held it in the past, not now. Banks have lagged for a long time, but now doing really well. The first phase of the upward swing was due to interest-sensitives doing better with lower interest rates. The second phase is driven by post-election hopes for deregulation and economy-friendly moves.
The US bank sector of course has had a tough year, and the outlook will largely depend on the economy and rates. However, the fund now has an average P/E of 5.5X and an indicated yield of 3.49%. We think this is cheap enough that investors can slowly start buying the sector now.
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