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.