2015 All-America Research Team: Banks/Large-Cap, No. 1: John McDonald

John McDonald

Sanford C.
Bernstein & Co.

First-Place Appearances: 2

Total Appearances: 10

Analyst Debut: 2005

John McDonald repeats atop this roster. The Sanford C. Bernstein & Co. analyst “has great long-term perspective in his research, as well as relentless client service,” marvels one fund manager. Another backer offers that his “legal and regulatory experience is very useful in deciphering the many challenges in large banks.” McDonald projects that large-cap domestic banks “can outperform the broader market in an environment of rising interest rates and steadily improving U.S. economy. Banks are positioned to see their net interest margins improve as rates rise, while other sectors of the market are already operating at peak profit margins.” Moreover, valuations for the group aren’t as stretched, relative to historical levels, as those of companies in other industries. U.S. large-cap banking shares fell 7.2 percent year to date through the middle of last month, compared with the broad market’s loss of 4.9 percent. Two of the researcher’s favorite names in this space are New York–based money center banks Citigroup and JPMorgan Chase & Co. JPMorgan is “positioned to benefit from rising U.S. interest rates, investments it has made in its retail banking and credit card platforms and $4 billion to $5 billion of cost saves that management is targeting over the next few years,” notes McDonald, 46. Pegged at $74, the shares closed at $60.94 in mid-September. Citigroup, a long-standing favorite, is attractively valued and can potentially trade toward next year’s projected year-end tangible book value of $67 to $68, he believes, as management executes on its efforts to streamline and derisk the organization, improve its operational efficiency and drive its return on average tangible common shareholders’ equity above 10 percent over time. In mid-September the share price was $50.29.