Wells Fargo (WFC)

(Market Call Minute.) J.P. Morgan (JPM-N) or Wells Fargo (WFC-N)? He likes both, but in the near term, Wells Fargo has some issues, so he would go with J.P. Morgan.

He likes the US banks. This one, in particular, has lagged the group because of some of the problems they had earlier this year. Trading at a pretty reasonable valuation multiple. As interest rates move up, the net interest margins are going to expand significantly. Doesn’t think people appreciate how much earnings upside these banks have if net interest margins normalize. Over the next few years, there could be 50%+ upside on earnings per share. It is only trading at 12.5-13 times earnings. Dividend yield of 2.8%. (Analysts’ price target is $53.10.)

This had been a traditional blue-chip name in banking. It has the largest mortgage book in the US. Rising interest rates are good for banks. The problem was when they got hit with opening false accounts. Trading at about 11-12 times earnings, and historically has traded at 16 times. This is a multiple expansion play just to get back to normal. Also, Trump wants to reduce banking regulations. Dividend yield of 2.88%. (Analysts’ price target is $52.81.)

His least favourite of the larger US banks. It has been for some time, not because of the headline risk and how they deceived shareholders by fabricating accounts. It has been because the valuation has been so much higher, and has traded at such a premium to BV compared to others. Thinks there is better value elsewhere.

This has gone through some difficult times of late. Their CEO left and they got a new one. The whole premise was that they were a store as opposed to a bank, which created a very sales oriented culture. They are now past that, and it is a great bank. This is a cheap stock. The steepening of the yield curve really helps them. If you can buy this at a good price, you should do well over the long-term.

(Top Pick Dec 10/15, Down 0.67%) He would stick with it for now. He believes these banks are positioned to be some of the leading stocks.

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.

Wells Fargo (WFC-N) or Citigroup (C-N)? He prefers Citigroup easily. This company’s problems have been dealt with, but they are not going to go away in a hurry. The brand and the consumer sentiment has been hurt, and is going to hurt them a lot longer than most people are recognizing.

A money centred bank, but also a very large brokerage firm in the US, the only large brokerage firm that covers the RIA channel, the independent channel and the employees (?) division, and as such, there may be an opportunity. That is the way to go when it comes to US brokerages. This is so large and does so many different things, that for him it has just too many moving parts. He would be pretty reluctant to buy the shares.

This is going to be a tug-of-war in the popular opinion of investors right now. From a sentiment perspective, it is not a name he is interested in until the dust clears a little. The growth strategy is a little suspect, as he understands they are not allowed to leave the US based on repercussions from 2008-2009. He would rather go into the regional banks where they don’t have some of the larger, macro economic government political headwinds. Consider using the Hamilton Capital Global Bank (HBG-T) ETF, which has about 25-30 mid-regional banks.

(Market Call Minute.) This has really been kicked because they have been found to basically having manufactured customers, which showed that they had very poor internal controls.

(Market Call Minute.) He prefers J.P. Morgan (JPM-N).

If you were going into any of the US banks, this is probably the place to be. Their recent problems raises the question if this were a broad-based culture in the bank, or one specific area that got out of hand. He has had his best luck buying Canadian bank stocks after they have had a disaster of one sort or another.

From an investment standpoint, it is probably time to add to your holdings. Typically, when he sees a big scandal hit a stock and the price comes off, that is usually a buying opportunity.

He is disappointed by the news of fake accounts. C-N is trading at about 65% of net assets. WFC-N should have been a good cross seller. He has been disappointed. He is gathering information to make an informed decision. He prefers C-N (a Top Pick).