The S&P 500 hit its first record close of President Trump’s second term, as a flurry of executive orders looks to shape the new administration’s agenda. Many analysts agree that the incoming administration could create a business landscape that is less regulated and more conducive to mergers & acquisition activity. As we noted last week, banks easily surpassed earnings estimates when they kicked off earnings season, and if such a landscape does materialize, such beats could be the beginning of a banking boom.
On the other hand, there’s Fartcoin, the combination of crypto and meme stocks – known as a “meme coin”. And, in this new administration, there are new meme coins every day. Are you kidding me?
Do you ever wonder what other junk Wall Street insiders might be willing to sell you when they’re openly hocking a security that clearly has no intrinsic value?
In such an environment, its critical to find stock picks and research you can trust. How else can you make sense out of the madness of the current market?
You need something to help you discern between signal and noise.
This email does exactly that – by sharing this week’s Long Idea.
With its position as a market leader across multiple business segments, this company is positioned to benefit from falling rates and more deal activity.
Even if that does not happen, this company has proven its ability to grow profits through all economic cycles. And best of all, its stock trades as if the company’s profits will never grow again, thereby creating a large margin of safety and quality risk/reward.
Our process for picking stocks is about as rigorous as it gets, and we’re proud to show our work. We’re not giving you the ticker for this pick, but we are happy to share large excerpts from the report.
The following is from the recent report for this stock, available to Pro and Institutional members. And, you can buy the full report a la carte here.
This stock offers favorable Risk/Reward based on the company’s:
- continued loan and deposit growth,
- improving net interest margin,
- consistent and strong free cash flow generation, and
- cheap stock valuation.
Rising Net Interest Income and Margins
Last time we wrote about this company, the U.S. treasury yield curve was inverted, showing signs of a recession, yet we believed the company would be able to maintain its strong net interest margins anyway. The company managed to do just that. Now, with inflation decreasing and the U.S. treasury yield reverting to a normal curve, the bank’s net interest margins have increased.
At a basic level, a bank makes money when it generates more interest than it pays out. This standard function of a bank grew more difficult in recent years, as interest rates in both the United States and Canada increased. However, this company was able to effectively manage its asset base and the rising cost of deposits.
In 2024, the company’s net interest income (NII) rose to 11% year-over-year (YoY) in fiscal 2024. The bank’s net interest margin followed suit, rising 4 basis points YoY to 1.54%. See Figure 1.
Figure 1: Net Interest Margin and Net Interest Income: Fiscal 2021 – Fiscal 2024
Sources: New Constructs, LLC and company filings
The success of the business doesn’t come from just one segment. For instance, the company grew reported 2024 net income YoY in its Personal Banking, Commercial Banking, Wealth Management, Insurance, and Capital Markets segments.
Loans and Deposits Are Growing at a Fast Pace
Not only has the company improved its net interest margins over the last few years, but the bank is also growing its loans and deposits. In other words, the company isn’t just improving its net interest margin on a stagnant balance sheet, it is doing so while growing its book of business.
The company’s net loans increased from $470 billion in fiscal 2019 to $704 billion in fiscal 2024, or 8.4% compounded annually. Over the same time, the bank’s total deposits grew from $673 billion to $1.0 trillion, or 8.5% compounded annually.
Figure 2: Net Loans and Deposits: Fiscal 2019 – Fiscal 2024
Sources: New Constructs, LLC and company filings
….there’s much more in the full report. You can buy the report a la carte here.
Or, become a Professional or Institutional member – they get all Long Idea reports.