Bank of Nova Scotia (BNS.TO)

Was always viewed as a low cost operator that didn’t pay their staff all that well and ran an amazing international franchise in Latin America. New management has taken out a lot of senior people very quickly, and that is making some people nervous. Has also been addressing some of the problems and concerns in Latin America, which has got people really worried. This is trading at a reasonable valuation. He likes what the new management is doing.

Leadership has changed in the last 1.5 years. What impact does this have? The quick answer is extra risks as there are always risks with a change in leadership. However, this is a Canadian pillar and when you are talking about change in leadership, everything is in place there. You’d really have to find an incompetent CEO to blow up the balance sheet and that is not happening here. ROE is still around 13%-14% and they are cheaper than a lot of the premier banks, so there is some opportunity. He has always shied away from there holdings in Latin America.

Banks in general have been outstanding long-term holdings. They seem to go up every year and have had great long-term returns on capital. They were at all-time highs recently, and have come off, maybe as much is 10% in some cases, which means they are on sale and this is probably a very good buying opportunity.

Likes the banks as a group, and with the current pullback they are at a very attractive entry point now. Their underperformance relative to the group was really before the oil price collapse. They were having problems with the countries they deal with internationally and had to write offs some loans. Typically this gets a premium valuation because of its International exposure, but some of these emerging markets are having problems domestically and this bank is feeling the brunt of that. (See Top Picks.)

Are you better off making a trade or holding off in order to keep getting the dividend? Stock has fallen a lot, so the valuation has gotten a lot cheaper. The stock price falling could make the investment less risky. You are paying less now for those dollars of assets.

All the banks have been a bit of a disappointment in the last few months. Of all the banks, this was the one that the street perhaps felt was a bit of a disappointment. He thinks that in the International money flows, we have more sellers in the Canadian market then we have buyers. Because the banks are such a big sector, they have been getting hit. He still likes this one. If it breaks below $60, he would have another look at it.

Likes it 10% upside. $69.82 model price. Would certainly buy it.

Bank of Nova Scotia (BNS-T) or Toronto Dominion (TD-T)? He thinks banks are the place to be. Financials overall are relatively good places to be in the current environment. Bank of Nova Scotia (BNS-T) and Toronto Dominion (TD-T) overlap in a lot of areas, but are quite different in terms of their overall characteristics. Scotia is a much more international bank and has been penalized somewhat lately, because of that. TD has done relatively well over the last while. They have certainly made a lot of progress in terms of positioning themselves in the US, but have also some a lot of money in behind that investment, so he feels it is a “wait and see” from a shareholder perspective. Scotia is currently selling at a discount to TD. If you were putting money in to either, on a long-term view he would rather put it into Scotia.

Of the larger big 5 Canadian banks, this is probably his least favourite. They are touted as an international bank, but where they are, internationally, is not very attractive. The Caribbean is essentially a derivative of tourism, and that has been weak. He sees them as being a little more challenged. Their asset arm was growing, but then they sold their stake in CI.

Tends to move higher from usually October right through until the end of November. The end of November is when they report their fourth-quarter results. Typically you want to take some profits on news. The next period of seasonal strength is from around the end of February right through until May of each year. Right now we are in an in between phase where it is going to slightly underperform the rest of the market. This one has been underperforming the bank stocks in general.

Not one of his favourites. If and when we start to get enthusiastic about emerging markets, this would be one of the ways to gain exposure to it. With the rising US$, there is some question about the capital stability of a lot of the emerging markets, and this could come back to bite this bank. (See Top Picks.)

Sell Bank of Nova Scotia (BNS-T) and buy a different Canadian bank or Canadian General Investments (CGI-T)? For long-term investors, Canadian banks are a good deal. They don’t have the growth rate that he is looking for, but when you take it on a combined capital gains and dividend basis, you are getting a 12%-13% growth rate over time. A 3^rd of it is in the form of a good healthy dividend and the rest is in capital gains. He would be reluctant to sell one bank to get another. You are not that much further ahead.

Has always liked the International exposure. Thinks that their holdings in Mexico, Colombia and Chile are very valuable, as well as their banking interests in Thailand. Pundits aren’t crazy about it right now as they feel this bank presents more risks than the other Canadian banks. He thinks it presents more growth opportunity. Inexpensive and presents a good entry point.

They are taking some write offs on their Caribbean and Latin American holdings. This is going to be where their growth is, but the growth hasn’t been there in the last quarter. There is a lot of foreign Selling on Canadian banks. If you own it, he would just wait it out. The yield is safe.

(A Top Pick Oct 17/13. Up 15.43%.) In the banking sector, some of the weakness we saw today underscores that Canada is not as strong as the US in terms of the stability of the economic recovery. If you can pick up a bank below 2.0 BV, you’ll do well. He believes this and Bank of Montréal (BMO-T) both qualify in that regards.