Chris McGratty 5.0 6 ideas

Citigroup is a top pick due to its upcoming investor day being a pivotal moment for the company's evolution, expected growth of 10-11% this year, and its stock trading near tangible book value with potential for multiple expansion as returns improve towards the low-to-mid teens.

Speaker stated he has liked JP Morgan for a long time, Citigroup is looking decent, and bigger banks are the place to be due to scale, diversification, and consistency. Larger banks possess the triple crown of scale, diversification, and consistency, allowing them to offset weaknesses in one business area with others, leading to strong and resilient ROIs. These banks are expected to perform well and are favored for investment due to their resilience and the permanence of higher valuations. Macro uncertainty could lead to reserve builds or impact investment banking, though diversification mitigates this.

Speaker said they have recently gotten very constructive on New York Community Bancorp (now Flagstar), believing it is past the heavy lift, returning to profitability, credit is improving, and a buyback at 80% of tangible book is expected mid-year. After stress and capital raising, the company is improving credit and profitability, with a potential buyback providing significant value accretion. The stock is attractive due to the turnaround and upcoming catalysts like the buyback. Credit issues could reemerge, or the buyback might not materialize as expected.

Speaker said PNC is a tremendous company with high teens return on tangible common equity, excess capital, and growth, but they are market perform due to valuation risk-reward. While fundamentally strong, the current valuation doesn't offer compelling risk-reward, making it selective for investors. Neutral stance because the company is good but not attractive enough at current levels for outperformance. Valuation could deteriorate further or fail to improve, limiting upside.