Bank of America (BAC)

Banks are a very, very interesting area, whether it is in the US or in Europe. It is an under-owned area, and an area that has underperformed for 8 years. There is a tide including the Italian election, Mr. Trump and BREXIT. There is a new dawn happening, and this is one of the areas where you can make money for an extended period of time. This bank is trading below Book. We are in a very, very early phase of a structural Bull market in financials. It is very under owned by large institutional investors globally. Dividend yield of 1.4%.

(A Top Pick Dec 8/15. Up 20.91%.) He loves this bank. This is trading at its highest valuation going back to 2008. (See Top Picks.)

(Market Call Minute.) He likes the US banks.

He likes the US banks across the board. This is trading at about its nominal Book Value, a discount to what he would call his Fair Market Book Value. It has huge upside potential, and he thinks that potential is going to grow under the Trump administration. Dividend yield of 1.37%. (Analysts’ price target is $20.07.)

Bank of America (BAC-N) or Wells Fargo (WFC-N)? US banks have gone on a tear because there is a belief that net interest margins are going to go up. Bank of America is a little steadier while Wells Fargo is more of a higher risk/high reward. (See Top Picks.)

Probably the most levered money centred bank to the change in interest rates. The CEO was quoted that a 1% move in interest rates would lead to about a $5 billion net income for the company. That represents about $.50 a share. If you put a 10, 11 or 12 multiple on that, you have some serious movements of the stock. Dividend yield of 1.42%. (Analysts’ price target is $19.90.)

(A Top Pick Nov 9/15. Up 16.44%.) If rates just stay where they are, this bank makes $1.3 billion in revenue. Not an expensive stock, trading at less than BV. Also, it is not trading on a huge PE basis. They have a great retail franchise, a great investment banking business and a great asset management business. They’ve really spent time to get their cost structure down.

This has been looking underpriced for a while because of the low return on equity. It was trading below its tangible BV, but has now had a big jump. If you are a short-term trader, you have made most of your money on this and he would be out. As a long-term investment, there are better places to be outside of the financial services space.

US financials have had a really good run of late, and he likes them. This is looking a little toppy right now, but is still trading slightly below BV. Feels that it has a couple of dollars more to run. You have a good 10% upside as a minimum in this name. Money is going to come out of some of the defensive sectors and go into these cyclicals, and the financials screen really, really well.

This is his largest holding. This has a lot of interesting attributes right now. Using a weekly chart, the last 2 weeks are the most significant 2 weeks in the last 8 years, both from a volume perspective and from a price perspective. Secondly, if this were over 2 weeks and there has been no retracement whatsoever, it tells you how much buying there is. The sector has been heavily regulated and the new president is likely to deregulate it.

The election is creating tailwinds for the banks. A steeper yield curve is extremely good for banks. Yields moving off zero are extremely good for banks. If you think of banks as toll businesses in a growing economy, collecting fees, it is fantastic for US banks. US Banks all pay high taxes and those tax bills make cut in half. IT will have much less risk than elsewhere ein the market. (Analysts’ target: $19.70)

BAC-N vs. WFC-N. There will be a bit of a push back on regulations by the industry. The big banks will only benefit from all that. Both banks will rebound. Warren Buffet is not a seller of his WFC-N. Short term BAC-N would be his favourite and WFC-N would be his favourite next year if there is no other negative news item.

He would wait for this and all the other US banks that have taken off to calm down a bit. Look for somewhere around $18-$19. The RSI is close to 80 at this point. This is pretty cheap, trading at .83 Price to Book.

He is positive on the US banking sector. He owns JPM-N. He likes how management is getting BAC-N geared toward retail banking. Banking regulation in the US should get more favourable. The bump up in rates could help the banks. 1.5% dividend.

If you don’t own this, he doesn’t have a problem with you buying a small position here. This is beautifully positioned for a more positively shaped yield curve and valuation. They will probably start paying some dividends. He just thinks it has been a little too far and too fast. There will be a chance to get this cheaper once the initial fever cools off a little.