Royal Bank (RY.TO)

Banks were the second-best performer in 2025 globally. Now, he's trimming his Canadian banks based on valuations. Be careful if you're concentrated in Canadian banks.

Banks in general have peaked but Royal Bank is a little different and is sort of at a base level. He holds TD and CIBC.  Long term banks are good but we are entering a pause period which could go for up to a year. He is not recommending buying banks now,

With Iran conflict, yield curve has gone a bit flat, so net interest margins aren't going to be as good. If the conflict persists, earnings will possibly decelerate. This name is best positioned for all that. Usually trades at 11% premium to peers, now 8%.

If you assume that the conflict gears down to more manageable levels, you could buy the banks here and this name is the best choice.

Has done well, but pulled back a little, which makes it an opportunity. Is the largest Canadian bank, very diversified with strong wealth management, so somewhere defensive. Pays a 3% dividend, not the highest, but still good. They bought HSBC a few years ago. It trades at a premium to the group, but boasts a higher ROE.

(Note the shortish timeframe.)  HSBC acquisition and its global capabilities are starting to bear fruit. Looking to expand wealth management in Middle East and China, thereby improving its positioning.

He'll get into banks again when prices are better. If the problems of GSY spread up the affluence chain, banks will have problems. Housing market is sloppy. Our economy is being bailed out by gold and oil prices. 

This is the class act you can buy and be fine over the long term.

Revenues went up last quarter, but so did costs. Needs better loan growth to hit ROE targets. Shines in asset management and capital markets. As market stabilizes, lots of opportunity in IPOs and M&A.

Always the gold standard if you're looking for a Canadian bank.

Disclosure:  His old employer.

Outlook is favourable. He owns BMO, RY, and TD. All 3 had good earnings, with TD probably the best. But the other two were also strong.

Tight, well-regulated oligopoly. A need, not a want. Diversified by geography and line of business. Good line of sight through the cycle to high, single-digit rate of dividend growth. He's overweight the banks.

Core holding, phenomenal name across all business segments. Outperformed the group. All that's reflected in the price, not cheap here. Interest rate cuts will support the consumer (lending, housing). Buy on weakness if you can get it.

Resolution on CUSMA will improve appetite to spend by consumers and businesses.

Is the top bank in Canada. Have been doing well in the US with investment banking.  Is up 31% the past year. Is the most expensive among Canadian banks but deserves that premium, but the sector valuation is reasonabe.

Her owns both. He doesn't wait for pullbacks. A year ago, he favoured TD because of the penalty imposed on them.  RY is trading at a full multiple, while TD is at a slight discount. He slightly favours TD. Also consider the other Canadian banks.

It is the highest weight in their bank holdings and is well positioned for growth. They bought HSBC Canada and can cross sell to clients. Its payout ratio is very reasonable at 45% of earnings. At a recent conference, bank CEO's expressed confidence in the outlook. The interest rate environment is more friendly now with payments more manageable than a couple of years ago. Banks continue to raise their dividends.

Right now, trend looks to be intact. You can have 6-9 month periods, even in a long-term trend, where not much happens. With banks you just collect dividends during those times, but they do add to your total return.