Louis Moore Bacon (Trades, Portfolio), manager of a top New York-based hedge fund, invests in markets using a “global macro strategy.”
The Moore Capital manager has been considered one of the best traders in the 1900s and has ranked in the top 20 money earners since the 1990s. During the second quarter, Bacon invested in three top U.S. banks: Bank of America Corp. (BAC, Financial), Citigroup Inc. (C, Financial) and JPMorgan Chase & Co. (JPM, Financial).
The manager of Moore Capital invested 5 million shares in Bank of America, his largest single purchase for the quarter. The bank averaged $14.05 per share during the second quarter and has modest financial strength.
Despite having poor operating margins and returns on equity, Bank of America still has high growth potential. As mentioned in a previous article, Bruce Berkowitz (Trades, Portfolio) increased his Bank of America position since the bank is undervalued compared to its tangible book value per share. Additionally, Bank of America’s three-year EBITDA growth and three-year EPS growth both outperform 96% of global banks.
Bacon also invested 1,500,216 shares of Citigroup and 925,000 shares of JPMorgan. The two banks averaged $44.22 and $62.46 per share.
Unlike Bank of America, both Citigroup and JPMorgan have expanding operating margins. JPMorgan has a slightly higher operating margin than does Citigroup; furthermore, JPMorgan’s operating margin currently outperforms 56% of global banks. During the past 10 years, JPMorgan’s operating margin seldom went negative. Citigroup, on the other hand, experienced a sharp margin decline in 2009.
Bank of America and Citigroup has a combined weighting of 84.8% and 72.9%, as illustrated on the grid of Standard & Poor’s 500 index companies. Dodge & Cox currently owns 221,999,832 shares of Bank of America, about three times higher than Barrow, Hanley, Mewhinney & Strauss, who owns 84,061,846 shares. The investment firm also has the largest stake in Citigroup with 20,870,998 shares.
Based on S&P's 500 grid data, Citigroup has 15 buys, one less than Bank of America does. Bacon made the largest purchase in Bank of America during the second quarter while Seth Klarman (Trades, Portfolio) purchased the largest stake in Citigroup.
See also
Banks have the 12th lowest median Shiller P/E among all industries. Additionally, the banking industry has the third-highest median operating margin, which suggests that banks generally have high growth potential. To find the best banks in which to invest, you can either use the All-in-One Guru Screener or get guru insights using “Sector Picks.”
Start a free seven-day trial of Premium Membership to GuruFocus.
