Royal Bank (RY.TO)

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.

She likes the banking group as a whole. They really haven’t done much this year. The Canadian economy is improving and rates are slowly rising, which is good for net interest margins. Feels the housing market is moderating and softening, but doesn’t see it collapsing. The bank also has exposure to the US through its acquisition of City National with good opportunities for growth. With a rising rate environment, we should see expanding margins. Dividend yield of 3.7%. (Analysts’ price target is $102.)

Canadian Banks show very strong seasonality. One of the better periods of seasonal strength is from September through until November. That has a lot to do with reporting of 4^th quarter results, which happens around the end of November. Historically, that has been the time to own the stock. You might want to wait another month before buying.

RY-T vs. CM-T. CM-T is cheaper. The PE is 9 vs. RY-T at 12. The market and street are starting to blend in a discount to CM-T because of the housing market as they are the most exposed. He would still hang his hat on RY-T because their global and domestic franchises are fantastic. They are trying to get into the US right now although are late to the game. He would still go for RY-T because it is more defensive.

(A Top Pick July 28/16. Up 20.69%.) At the time, he felt short interest was too high in the banks and that this had a better mix than the other banks. Still likes.

Banks as a group have been more or less sideways. You can buy this at these prices. The dividend is quite safe and will likely be increased. Recent numbers were quite good. You pay a little bit of a premium for this bank, because it is the biggest bank in Canada. In terms of sources of revenue, it probably has the least risk.

Banks have largely been ignored in terms of their potential for throwing off free cash flow and increasing benefits to shareholders, whether through direct dividends or through international growth. Canadian banks tend to earn 15%-20% domestically on ROE, which throws off a lot of capital that has to be reinvested. It can’t all be reinvested in Canada. This bank has a large advantage there. Dividend yield of 3.9%. (Analysts’ price target is $102.)

(A Top Pick Dec 9/16. Up 40%.) Bought a Long-term call at $4.50. The option is still valid and doesn’t expire until next January.

Chart shows a nice upward trend, with a bump upwards due to the election, and then coming back and testing, and is now on the way up again. Dividend yield of 3.7%. (Analysts price target is $102.)