Category Archives: $HBSC

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…..