SIVB and ENV: Banking on the US

10/14/2015 9:44 am EST


Michael Berger

President & Founder,

Many investors are nervous about this earnings season due to the challenging global market, and Michael Berger, of, expects global market weakness to continue to be a reoccurring theme so he highlights two US-centric financials he favors instead.

Following a weak earnings announcement from JP Morgan (JPM), the largest bank in the United States, many investors are nervous about this earnings season. And they have every right to be so.

During the third quarter, JPM saw revenue fall 6.4% and this was driven by a slump in trading and mortgage-banking results. CEO Jaime Dimon said, “We saw the impact of a challenging global environment and continued low rates reflected in the wholesale businesses’ results.”

We expect global market weakness to serve as a headwind during this quarter, as well as future quarters. JPM will not be the only company affected by this and we expect global market weakness to be a reoccurring theme during this earnings season. For this reason, we continue to favor companies that generate most of their revenue in the United States.

One of the banks we are favorable on is SVB Financial Group (SIVB). The company operates in Silicon Valley which is one of hottest economies in the United States due to its focus on the booming technology, life sciences, venture capital, and private equity industries.

SIVB is poised to continue producing best-in-class loan growth, and if interest rates increase, the company will generate significantly more net interest income. SIVB is primarily focused on the United States market but they are seeing significant growth in the United Kingdom after entering the market a couple years ago.

Another bank we are favorable on is Envestnet, Inc. (ENV). The company provides wealth management software and services to independent financial advisors and financial institutions in the United States and internationally. ENV has become the dominant provider of practice management technology for fee-based advisors. We expect to see more advisors transition to a fee-based model due to increased regulations associated with non-fee-based accounts.

We think investors under appreciate the margin expansion story in 2016 as ENV consolidates two large technology platforms. We expect to see operating margins increase from 15% to more than 20% in 2016.

Michael Berger, Founder and President,

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