Royal Bank (RY.TO)

RY has been moving up in a stair step formation. This correction is just part of the normal process for that type of long-term increase. After the TSX settles out from this correction, the TSX might rally well in the spring and a rally in the TSX will include the bank stocks. Their best season is into December, but they can continue to do well into the spring.

Long-term investors who have just held Canadian banks have made out like bandits. They’ve compounded rates of double digits and dividend growth, and he doesn't see that ending. Canadian banks should trade at more than 13X earnings. The overall market is trading at 19X earnings. He likes Canadian banks and feels you should overweight them in your portfolio.

(A Top Pick Dec 14/16. Up 17%.) She likes the banks as a group. They’ve started to pick up their price/share performance mid year. This has been one of the leaders in the group. Has about a 22% exposure in the US, which she likes. While the valuation is a little elevated versus historical averages, the earnings are coming through and are pretty stable. Their payout ratio is about 46% of earnings, and the targets are 40%-50%. They are going to continue to get that 7%-8% earnings growth.

There is a short call on this one. Canada’s largest company and one of the largest banks in the world. It is the undisputed leader in wealth management. It is a leverage play on domestic banking. It has a 3.6% dividend that grows at 10% compounded. It should be a core part of any Canadian portfolio. (Analysts’ target: $108.00).

Canadian banks for the last 25 years have outperformed Berkshire Hathaway. Canadian banks have been no-brainers. Thinks you are going to get 8%-10% returns going forward from both a stock appreciation and dividends.

You could own any of the banks. Sticking with a Royal or TD or any of the others, you are probably going to be pretty good. Thinks there is a little more upside and more safety in this bank. Expects it will be a few months down the road before there will be the impact of any rate increase. Dividend yield of 3.6%. (Analysts' price target is $101.)

It is one of his principal holdings in the financial services sector. We’ve seen all the banks doing fairly well recently and Royal Bank looks more expensive than the others now. If he was investing in banks today he might look elsewhere. You need to look at dividend growth. We could see a setback in the prices of the banks should the market have a precipitous fall.

He trimmed some in the spring around $98 and replaced it in the low $90s. It is a quality, quality bank and is a big beneficiary of bull markets. You can buy it here and a year from now it will be up. It is a solid, well run company. (Analysts’ target: $101.00).

RY-T vs. TD-T. They both look very attractive at these levels. From the beginning of September until the last week in November. This year rate increases are going to help. We are testing an all time high and they will likely head up.

He likes this very much. Had very good results in the 2^nd quarter, and is certainly benefiting from the US acquisition. A well diversified bank. Selling at the highest premium to the average PE multiple of the Canadian banks, which it tends to do.

The Canadian stock market is down and the economy is doing well. These banks should do well now. He owns 4 others. This one is down the most over the last 6 months. (Analysts’ target: $101.00).

Historically, this has reached a fairly important low at around the end of September, and moves higher right through until when it usually reports its 4^th quarter results, around the end of November. Technically it has a very solid support just below the current market. It seems to be bottoming around its support level, and there is a pretty good chance that by the end of this month you will see the stock outperform once again and move higher.

Change from Toronto Dominion (TD-T)? Royal Bank has a very, very interesting pattern. It tends to trade at 2 valuation breakpoints that he has, about $77 and $111. Currently, it is right at the centre point. The earnings were good, and the bank stocks themselves are cheap. Royal is not as cheap as TD, so TD is his favourite and has been. If you want to be bullish on the banks, then Royal has upside to about $111-$112. (See Top Picks.)

If things carry on as they are the stock could hit $100 in the next year. They had lost some of their premium multiple, but if they get that back they could hit $103 in a year.

They kept investors happy by cranking up the dividend. It is okay to buy. There is still pretty good opportunity for the stock going forward.