Bank of America (BAC)

(Market Call Minute) Money center banks are the way to go.

Does not make the cut for him. The earnings profile is too volatile for him. But it is a very inexpensive stock. The sensitivity is the yield curve. They don’t make as much margin as they should. He also sees a heck of an M&A cycle. He would continue to hold this. 3-5 years it should be a pretty nice performer.

Paying a $17 billion fine which actually pushes the stock higher. Only $9 billion is in cash. This is not the big issue. The issue is that they are finishing off with all these huge regulatory issues. The fact that they are able to increase their dividend is a sign that the Fed is much more comfortable with their balance sheet. Likes this company because the regional and global economies are recovering. Banks do well in a global recovery. This bank is very leveraged to the retail business in the US. Trading at 0.7X Book. Reasonable dividend yield. Expects their capital ratios are going to explode over the next little while, and they will have to buy back more shares or increase their payout ratio.

Have a big settlement coming with the US government. Also, had a hiccup filing their capital plan, where they were originally approved and then had to refile. As a consequence they are not allowed to do a buyback, but are allowed to raise the dividend. There are still some headline risks. Over the next 1.5 years, where he thinks the market will start to discount higher rates, this will be positive for the big banks. If you are willing to look further out, US banks are still cheap. He prefers Citibank (C-N).

Likes this. Sold his holdings recently when it ran up into the $16-$17 area, but is looking at a point for when to buy it back. There is earnings potential in the $1.80-$2 range. Still a lot of costs they can cut and can generate some earnings growth.

Bank of America (BAC-N) or HSBC Holdings (HSBC-N)? This is one that is not of interest to him. He doesn’t care for their business model. In the US, he prefers regional banks that make their money through loans in their region. He owns some HSBC, and is looking at this as a possibility for the rest of his accounts, as it gives European and Asian exposure.

Trading below Book Value. Currently trading right on the cusp of being in a condition of being rejected by the market, and being accepted by the market. If it can break through about $17-$18, the stock has a terrific run ahead of it.

The only financial that he owns is Goldman Sachs (GS-N). Expecting that over the next year or 18 months, he will have more of an exposure to the money centered banks. Feels that we are likely to see some inflation entering the economy, and for that reason we are likely to see the yield curve steepen, and banks will make money the old traditional way, lending long and borrowing short and lending long.

Likes the US financial space in general. Valuations are below long-term averages. Has been beaten up a little with regulatory issues and low interest rates, but those will change. Hopefully, next year, the regulatory issues will be less and interest rates will be higher. The economy should have picked up even more so. He prefers Citigroup (C-N) and J.P. Morgan (JPM-N). (See Top Picks.)

Likes the overall US banking sector. The improvement in the US economy will help lift all of the US banks. Also, feels interest rates are going to rise over time, which will help the banks considerably. Prefers Citigroup (C-N) over this.

Still in the process of shaking off its past. Has a good bead into the retail investment space however a better name would be Wells Fargo (WFC-N). He prefers the Canadian banking sector, especially Toronto Dominion (TD-T).

A consumer focused bank. They had many blunders over the past few years, and he thinks the CEO is trying to get rid of those and move on. Continues to be a consumer focused retail bank. Feels this will work longer-term. Over the longer term this stability should be good for the bank.

(Top Pick July 02/13, Up 21.09%) It has done its thing, but it still trades well on its tangible book value. There are only so many people that can sue them. The US housing recovery is in place.

5.125% bond maturing December 29, 2049. It is very, very likely to be called in five years. They are an improving credit story; capital levels and profit are up. Headline risk has diminished.

Own 10% of all deposits in the US. Great retail branch brand. Has great investment banking in Merrill Lynch, and a great asset management business along with a great brokerage business. US growth, global growth, and a better housing market will help. Not expensive. This could easily trade at 2X Book. Great time to buy at these levels.