Category Archives: $GS

US Financials Update – 6 Months on from Post on April 23rd – take some profit ahead of reporting..

Posted back in April the pull back was a chance to buy some US Financials, and to buy GS which looks the cheapest (prior to that it was C). They were all trading below fair value – now they are above fair value as prospects of higher rates and tax reform. Sometimes strategies do take time to play out.Take some profit, but keep a core position as these stocks may break out to new high if results are good.

Px Vs Fair Values

April: $JPM 84.5 vs 83 Yield 2.3% [Dimon top CEO!]

Now: $JPM 95 vs 90 Yield 2.3% – going to a 100.

April: $C 58 vs 64 Yield 1% – cheapest to Book value – but seems to be the least liked!

$C 69 vs 72 Yield 1% – best performer over 2 years

April: $MS 42 vs 44 Yield 1.9% – reported a great quarter, Gorman is doing a great job…

$MS 49 vs 45 Yield 1.9% –

April: $GS 217 vs 250 Yield 1.4% [ 1.1 x book value] tough quarter, but they will bounce back!

$GS 237 vs 247 Yield 1.4% – they need to report a good quarter.

April: $BAC 22.5 vs 25 Yield 1.4%

$BAC 25 vs 24.5 Yield 1.4%

2CentView has a trading position in GS average cost 225, looking to take some profit at above 245 next week. Also, have a core position, which was trimmed back at 49 ahead of results. Keeping core positions in both – think US rates are going higher.

US Financials Update post results….one is great buying opportunity….

US Financials have had a great run since the US election, but have pulled back as the bond markets have rallied following the failed US Health care bill and a FED which does’nt seem to be in any rush to raise rates soon….

The pull back is a potential buying opportunity, especially Goldman Sachs which reported a disappointing quarter where their fixed income trading revenues disappointed – maybe they were caught offside on the bond rally!
Remember MS which reported a terrible quarter about a year ago – but reported a great quarter in Q1 in – with earnings well exceeding expectations – even great companies have bad quarters – look for these bad quarters as a buying opportunity!

Px Vs Fair Values

$JPM 84.5 vs 83 Yield 2.3% [Dimon top CEO!]

$C 58 vs 64 Yield 1% – cheapest to Book value – but seems to be the least liked!

$MS 42 vs 44 Yield 1.9% – reported a great quarter, Gorman is doing a great job….

$GS 217 vs 250 Yield 1.4% [ 1.1 x book value] tough quarter, but they will bounce back!

$BAC 22.5 vs 24.5 Yield 1.4%

Goldmans is now the CHEAPEST of the banks, and a great buying opportunity. Mnuchin and Cohn, 2 key people in the Trump Administration are ex Goldman!

Tax reform and deregulation is coming – and these will help the banks regardless of interest rates and the shape of the yield curve.

2CentView has a core position in Morgan Stanley, added a trading position in MS at 40.5 and plans to add a trading position on Goldman Sachs tomorrow.

Suggested trade: Buy here at 217, Take profit Target 250, Stop 195.

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…..

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!