Category Archives: $BARC

2CentView Themes – Financials

Less regulation and higher interest rates will take bank valuations higher – they have already had a good run, but will go higher if rates rise at faster pace than expected, so keep a long a position in your favourite stock and if possible overall higher weight (20%) in the sector. Also a good hedge against higher rates, which mean higher mortgage payments.

Px vs FV

$JPM 86 vs 80 Yield 2.2% [Dimon top CEO!]

$C 59.4 vs 64 Yield 1%

$MS 42.3 vs 44 Yield 1.9%

$GS 239.5 vs 228 Yield 1% [2 key Trump appointments are ex Goldman Sachs Bankers]

$BAC 22 vs 23 Yield 1.4%

The regional US Banks could also do well, and perhaps consolidate. Top Picks are:

$KEY 18 vs 18 Yield 2%

$FITB 27 vs 25 Yield 2%

If you are not involved recommend buying anyone of the these top US Banks, $MS and $C still lower than Fair value, 2 key appointments are ex-GS Bankers, Jamie Dimon is a great CEO and JPM is a top firm + either KEY Bank or Fifth Third.

—European Banks—

European Banks are still not great shape and the negative interest rates are causing problems – except for perhaps $HSBC, which has performed well this year as Gulliver simplifies the business model and sells assets.

Deutsche Bank has had a good run since hitting a low of EUR 10, but it is not total clear where it will go from here – a rights issue may be required, the fine of $7billion much lower than the $14billion, but still $2billion higher than provisioned – although around $2billion is deferred over 2 years.

Barclays also has the overhang of a law suit from the SEC over mortgage backed securities sales in 2008. The stock is trading at 60% to book value.

Px vs Fair values:
$DBK 17 vs 18

$BARC 221 vs 200 Yield 1.25%

$LLOY 55 vs 62.5 Yield 4.7%

$HSBC 660 vs 675 Yield 4.7%

2CentView has a core position in $MS and $HSBC and a trading position in Barclays opened at 211.

Post Trump: US Financials surge pretty amazing….should you…

A month ago, to the day, recommended going overweight Financials, as less regulation and steepening yield curve will take bank valuations higher – the run has been pretty amazing – should you take profits?

Fair value updates below – earnings have been revised up so the stocks are still not expensive versus Fair Value, and could go higher:

Px vs FV

$JPM 84 vs 80 Yield 2.1%

$GS 240 vs 225 Yield 1.1%

$MS 43 vs 43 Yield 1.9%

$C 60 vs 60 Yield 1.0%

$C – which was the cheapest – is now trading in line with fair value after a whopping 12% move in one month.

UK Based International Banks

$HSBC 673 vs 650 Yield 5%

$BARC 233 vs 200 Yield 1.49% [Book value = 290, FV unchanged – think it will be a while before analysts re-rate Barclays earnings]

2CentView has a core position in Morgan Stanley and decided to add a position in BARC at 211 which is trading well below book value (around 290). Barclays is the only serious European Investment bank and after reading an article in the FT think they have the right strategy to recover to a more full valuation around 300p (book value).

2CentView also retains a core position in $HSBC.

2CentView is that the financials have the potential to have more to run in the long term – but always to good take some profit after such a good run – but keep a core position.

Post Trump Opps: Financials could benefit…

If you are underweight financials – go equal or overweight to around 20%.

The Trump presidency could be the start of the end of low interest rates as growth and inflation picks up. The yield curve has already started to steepen (implying rates will start to rise).

Insurance companies will also benefit – they sit on a lot of cash – and usually invest it in long term assets.

US Banks have rallied – perhaps a bit too much – earnings estimates will be revised , so fair values below are conservative:

Px vs FV

$BAC  19 vs 19   Yield 1.6%

$JPM 76 vs 70 Yield 2.5%

$GS 204 vs 210 Yield 1.27%

$MS 38 vs 36 Yield 2.1%

$C 53 vs 58 Yield 1.2%

So C is the cheapest – it also one of the few banks trading below tangible Book Value.

2CentView has a core position in Morgan Stanley and may add $C (Citi).

$JPM is a great bank with a great CEO in Jamie Dimon but the stock has overrun a bit.

UK Based International Banks

$HSBC 617 vs 580 Yield 5%

$BARC 200 vs 200 Yield 1.49%

2CentView has a core position in $HSBC.

Also think Insurers will do well in a higher rate environment:

US Names:

$AIG $63 vs $62 Yield 2%

UK Names

$DLG 355 vs 400 Yield 6%

$LGEN 229 vs 251 Yield 6%

2CentView has a core position in $DLG and trading position added at 347.

No need to rush into any of the above – if you like $JPM for example, wait for a pull back to 70 before buying.

However, these stocks will benefit from less regulation and hedge you against rising rates – which could lead to higher mortgage costs and lower property prices…..

HSBC FV=650 vs 560px Yield 6% – hated company but quality assets? Academics…

Banks continue to find it hard going – last tweeted about HSBC in July 2014, where the recommended trade was stopped out at 590 as the scandals continue to hit the banking market and HSBC.

Banks are finding it tough going – tighter regulation, ultra low interest rates and legal provisions covering potential heavy fines in all markets – gold, silver, libor, cds etc…

HSBC have also been accused of helping clients from one of their swiss operations avoid paying tax – for which FLint and Gulliver were hung up by a committee in London!

So should you buy now? Academics have shown that Hated Companies which have quality underlying businesses outperform – HSBC do have a quality underlying business, but it is perhaps to big to manage and they need to divest more and ensure core operations are clean. A strong dollar and rising interest rate environment should help also.

Trade: Buy here at 560, target 645 for 15% Plus 6% carry – Stop 520.

Comparables:
$Barc FV = 300 vs 250
$JPM FV = 72 vs 61
$STAN FV=1200 vs 1010

2CentView has trading position in $HSBC opened at 560.

Happy 2015 from 2CentView

Thanks for the all the comments in 2014.

As tweeted at the beginning of 2014 (http://www.2centview.com/2014/01/02/happy-2014-from-2centview-2014/) central bank policies are designed to create real jobs – jobs will not be created unless companies must see real growth – this has certainly happened in the US where unemployment has fallen below the target 6% and gdp growth last reported at 5%!
This has sent the US Indices to records as the majority of companies continue to beat earnings expectations.
As growth begins to accelerate, interest rates are expected to rise as growth is normally accompanied by inflation – but this did not happen – instead of the 10Y US government yield rising to 3% as many predicted it yields kept falling…For some time this created a paradox – the bond market was saying inflation was not a problem – in fact deflation was a bigger problem than inflation – hence growth cannot be possible – but the stock market was saying the opposite? Which market was right?
From the US Perspective, it turned out they both were – what we have seen is amazing drop in oil prices and commodity prices staying low. Oil prices have dropped due to oversupply (fracking, more efficient cars/jets, need to for countries like Venezuela and Iran to keep pumping oil, and a lack of any growth outside the US.
So this means we could have a year of growth with zero inflation – even deflation or disinflation – this could be great for stocks as costs are kept low but prices may not necessarily follow as there is strong demand as people spend their additional cash from their savings on fuel and general confidence in the job prospects.

Only once in the past 13 where there is a 5 in the year has the stock market gone down and David Tepper is making parallels with 1998=2014 and 1999=2015 – both of which saw a russian crisis followed by a great year leading to over valuation from fair valuation.

Stay Invested in stocks in 2015 – the market is not cheap anymore – so finding bargains will be difficult – so look for sells offs like EBOLA to get in!

Would recommend keeping at least 50-60% invested in the US in 2015 (2CentView had 75% in the US invested in 2014).

If you are not invested, here are some starter stocks to get your portfolio going:

Financials – should do well in rising interest environment – so hedge against interest cost rising
$Barc FV=280 vs 243 yield 2.8%
$JPM FV=72 vs 62 yield 2.5%
$GS = 215 vs 194 yield 1.25%
Or if you want exposure to Europe $DB (Deutshe Bank) F=35 vs 25 yield 3% – note:Euro could go much weaker

Social, Mobile, Cloud
No Bargains here – the last was Google at 500 – take a small position in TWTR below 40

Commodoties – with prices at all time low could be an entry point – keep to stops if they keep falling
BHP BIlliton FV=1850 px = 1390 yield = 5.9%
Anglo American FV=1550 px = 1200 yield = 4.5%

BioTech
No bargains here except:
$GILD FV=115 vs 96 9.5 2015 P/E 5% 5Y implied growth!

And finally – look to get into oil stocks when oil finally bottoms out…keep an eye of PetroFac and Halliburton

Happy New Year and all the best for 2015 from the 2CentView team!
Lets hope its good and a bit less volatile!

Banks have been battered in 2014, but is it time to buy after RBS results?…

Banks have been trading at a discount to fair value all year – but instead of converging to fair value, they have just been getting cheaper – the market’s concerns about regulators coming down on them hard for ‘unsound’ business practices and trading complex instruments nobody including themselves really understand and manage the risk….have been justified

JPM 13billion $ Fine
BNP $9bn for dealing in the US with sanctioned countries
HSBC 1.9bn for money laundering

plus other lawsuits, for fixing prices in the gold and silver markets, deceptive practices in dark pool share trading…. !!!

However, is at the times when the news flow is bad and the stocks are really cheap, it is time to buy!….unless you think it will get worse from here …. in which case or trade only half what you want now, and the other half further down.
Morgan Stanley has shown the way of how to generate revenue by focusing on wealth management & investment banking – no need to trade complex debt instruments. Commercial Banks should focus on Lending to businesses, mortgages etc… RBS has shown how profitable that can be in a growing economy!

Some Market prices vs. Fair Values for names with potential upside + Carry

$BARC 275 vs 220 Yield 3%
$HSBC 720 vs 630 Yield 5.2%
$BNP 55 vs 49 Yield 3%
$JPM 64 vs 59 Yield 2.65%

2Centview pick is $HSBC – it should benefit from the growth UK & US Economy and offers an attractive yield. Results due 4th August. Buy here at 6,30 target 700, stop 590
2CentView has a trading position in HSBC at 6.23 and has a core in Morgan Stanley from 2013.

$BARC and $TCG report Tuesday…FVs..

$TCG FV=180 vs 185 px$BARC FV= 320 vs 271 px

May want to sell some surplus to core positions in $TCG ahead of results.

$BARC has remained a cheap to FV stock for 12 months now…still plagued with many issues – trying to re position itself similar to MS and other banks who are now less reliant on Investment Banking and more on Wealth Management.

2CentView has a core position on $TCG. Taking a longer term view and a return to 250 area.