Bank of America (BAC)

Has used this a few times as a Top Pick over the last 6 months. If he had to pick one bank in the US, this would probably be it. Very domestically focused. He likes the improvement that is going on in the US economy. They are an enormous beneficiary of rising interest rates. In the most recent quarter, there was one interest rate increase, and this bank had an additional $600 million of earnings from one interest rate increase. Trading at just over 1X BV. You are going to get dividend growth, earnings growth and multiple expansion. This has 5-6 years in front of it.

(Top Pick Feb 11/16, Up 113.46%) They had a big run after Trump came in. The financials are not expensive at these levels. It is still below book value. They are massively overcapitalized so there should be buybacks. You need to see actualization of some of the policies coming in.

Recently Shorted this in his Hedge Fund. People are paying up for a turn in earnings. It is coming, but maybe not at the rate that was to be expected. The positive view on the yield curve for financials is certainly positive. Interest rates had a bit of a move to the upside, but they seemed to have stalled out. Unwinding Dodd-Frank is going to take a long time. He wouldn’t own it at this time.

He has never been a fan of management. He only owns regional banks in the US. If he were to own a big US bank, it would be J.P. Morgan. This bank is a big beneficiary of the Dodd-Frank provision being repealed or pulled back. It is also benefiting from higher markets.

Despite the massive run in financials he still likes the stock and the sector. It is trading at a discount to its tangible book value. They have only been able to grow their bottom line by cutting costs. Deregulation would be a massive positive to them if it happens.

The chart is showing consolidation. This is in the right sector and in the right industry group. Financials broke out before Pres. Trump was elected. The really good promise was the rollback of the Dodd-Frank act. He has a pretty positive view of financials. The stock is cheap relatively speaking and the environment is very positive.

His target is in the mid-$30, so he will continue holding it for a while. Interest rates going up are good for them. Banking regulations going down are good for them. They’ve gone through most of the litigation they had to deal with, and that lowers costs. He likes the CEO. Thinks it will do well from here.

He loves it and has a substantial position. It hits new all time high $25.80, 11% upside.

He loves this bank. It is a company that is transitioning from being kind of a “self-help” story, cost cutting to capital return. Has a great franchise in terms of wealth management. It is the leading bank and is domestically focused. You are going to see increasing capital return and a steepening yield curve. There is very little that can derail financials.

He is crazy about the US financial space. There is lots of upside. There is still regulation coming that will help the banks. Higher interest rates will help net interest margins. The US consumer is confident and is able to spend and borrow money. This bank tends to benefit from that. This is the most levered to the US consumer. You won’t go wrong with this, although the yield is awfully light at 1.2%. (See Top Picks.)

He believes it has high growth potential. He bought right before the election. It represents the best play on rising interest rates. It should get 50 cents a share increase for every percent rise in interest rates, plus there is deregulation.

This has had a big move post the election, and sort of treading water now. If we are in an environment where we are going to see rate hikes, and that appears to be upon us for the balance of this year, that is going to be good for financials, particularly the banks. Also, throw in some deregulation on some of their banking activities, and that is a positive for them as well. These stocks are still trading below their historic price/book value, even though they’ve had big moves up recently.

Seasonally, the best time to own this is from right around now until approximately May of each year. Technically, the stock is in an upward trend, and testing its recent highs. It is outperforming the market and has positive momentum, and we are just about to enter the period of seasonal strength. It looks like an excellent opportunity to add more positions.

Their earnings came out the other day and were block buster. This happened with only one interest rate bump. Clearly there is some nice momentum going. They ought to be creating excitement amongst investors. He is hoping Trump will take a look at what the banks are allowed to pay out. There should be room for dividend growth. (Analysts’ target: $24.72).

The investment community has gotten very, very positive on US banks, because of Donald Trump and deregulation. US banks are really complicated and there are so many different things going on inside these banks. They are probably going to ease some restrictions, which is a good thing. However, these restrictions were put on, because the banks did bad things. Rising interest rates will be positive for banks, because they will have higher earnings. Conversely, we already have US consumers struggling on subprime model loans. Mortgage finances are going to slow down. This is a tough call. Feels that a year from now they could be kind of flat from here.