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A BlackRock Manager's Top Financial Picks
By Dan Freed 12/10/09 -
NEW YORK (TheStreet) -- BlackRock(WFC Quote) fund manager Kevin Rendino, who oversees the money manager's Basic Value Fund, is underweight the financial sector, as he worries lawmakers will give the sector their full attention once they are finished with healthcare.
More on GE Pimco Funds Outperform Bond PortfoliosWill the Coming Glut Sink Shipping Stocks?Stocks Open Higher as Trade Gap Narrows Market Activity General Electric Company| GE UPRegions Financial Corporation| RF DOWNJPMorgan Chase & Company| JPM DOWN"At the end of the day the bark was bigger than the bite," Rendino says of legislative threats to the healthcare sector, and while he believes the same may ultimately be true of financial reforms, he still expects weakness in the stocks as investors worry about the issue.
Relatedly, Rendino expects dilutive capital raises, not only from Wells Fargo (WFC Quote) and Citigroup(C Quote) as they look to pay back the money they received from the U.S. Treasury's Troubled Asset Relief Program, but also from several regional lenders.
"A lot of the issues come from a lot of these smaller companies like a Comerica (CMA Quote) or a Principal Financial Group(PFG Quote) or a Regions Financial (RF Quote)or a Fifth Third (FITB Quote) -- a lot of the regionals, which is a place we have not gone to -- we haven't gone [to] because that's where the commercial real estate issues reside," Rendino says.
On the other hand, Rendino is confident JPMorgan Chase(JPM Quote), one of his largest financial holdings, has enough capital to meet whatever new standards are put into place. He also believes JPMorgan, trading at around $41 Wednesday afternoon, will hit $60 over the next three years as the benefits of the Bear Stearns and Washington Mutual acquisitions made during the crisis cause the bank to consistently beat estimates.
"They stole both businesses with government backstops, especially Washington Mutual," Rendino says.
Rendino worries, however, that a resignation by JPMorgan boss Jamie Dimon would hit the stock hard. Many have speculated he will leave the bank to pursue a political career, perhaps as Treasury Secretary.
"If you told me tomorrow that he was leaving, the stock would be down 10 or 15 percent," Rendino says, though he believes Dimon's relative youth, desire to "get paid" for steering his bank through the crisis in good shape, and the fact that, in Rendino's view, Dimon "detests government," are working in favor of JPMorgan shareholders.