Bank of Nova Scotia (BNS.TO)

Has been avoiding Canadian banks in favour of US banks which have traded at lower valuation multiples over the last number of years. Cdn banks have been star performers with much better earnings growth and ROE performance but in his view some of that has been driven by a very robust commodity sector in Canada. These are areas that he thinks we could be seeing some slowdown in. This one, relative to some of the other Canadian banks, is interesting simply because of its exposure to South America, Central America and Mexico.

One third of their earnings is through international exposure, which appeals to him. You don’t have weakness to the North American economies in the same way. Acquired ING Direct. Raised the dividend twice by almost 10% in the last 15 months. Yield of 4. 2%.

Typically this stock has a difficult time at this time of year. Seasonality usually goes from October to the end of February. This one recently broke a support level and established a downward trend. It is now underperforming the TSE, below its 20 day moving average. You shouldn’t be there.

What are the key metrics that you would use when assessing this bank in comparison with the others? Typically, when she looks at the banks as a group, she is looking at their ROE and sustainability. This one is up there at the top in the high double digits. You also want to see Book Value growth, a combination of earnings growth as a lot of times she will use Price to Book Value as a metric. This one and Royal (RY-T) tend to be the premium price within the group because they do have relatively higher ROE’s. Pretty attractive earnings growth. Then of course, there is the yield. (See Top Picks.)

Likes the international flavour and the price point which has come back below $60. His one-year target is around $67. Not just a Canadian retail bank as you get Mexico, Peru and Philippines.

Banks. US banks have had a great move. Most have had clearance to buy shares back and raise dividends. Longer-term, he wants to stay with Toronto Dominion (TD-T) because of its international exposure and the same for this bank. P/E ratios are lower than their US counterparts. He favours Canadian banks over the US ones.

Banks have had quite a substantial move. He is personally starting to reduce his positions. Chart shows this one is in its 2^nd up leg and is due for a correction. If you own, he would be tempted to reduce.

You can’t worry about stock value and 52 week highs. It’s about yields of dividends. BNS just raised their dividend. This is a good quality company. Over time it tends to be a good investment so they force themselves to hold them. He has about a 20% weighting in banks.

(For international diversification and growth, is this a good bank or should they choose a US bank instead?) If you had no bank positions whatsoever, he would take half of a Canadian bank with good US exposure such as Toronto Dominion (TD-T) or Bank of Montréal (BMO-T) and he would put the rest into this bank for the offshore exposure. This way you will have all bases covered. (See Top Picks.)

One of those classic beginning of year rallies so you might have a pullback before the end of the quarter.

(Market Call Minute.) Fairly priced right now.

(A Top Pick Feb 16/12. Up 13.92%.) Likes the international flavour. He is relatively underweight Canadian financials, partly because of his concern of the highly levered Canadian consumer. This one has good international exposure.

Good bank with a global footprint. Currently, fully valued. With inflation and currency controls in South America, sooner or later, it is going to trip and that’s when you pick it up.

Bank of Nova Scotia (BNS-T) or Toronto Dominion (TD-T)? TD has more of the personal banking and they have that space going very well and, obviously, Scotia has a Latin American exposure. With Scotia you are paying out 11X, which is similar to TD. The only difference is that he thinks TD will increase its dividend a little bit quicker over the next 2-3 years. Likes Scotia’s Latin American exposure.

(A Top Pick Jan 12/12. Up 14.83%.) Thinks the ING is a good purchase for them. Paid a lot of money for it but they get $30 billion plus of deposits. This will aid profitability and reduce earnings variability. There is always the cross-selling. Dividend yield of 3.96%.