Royal Bank (RY.TO)

Royal Bank (RY-T) or Manulife (MFC-T)? This one definitely looks a little better. Chart shows it had a major break out in 2016, and he thinks it is going higher.

Had a great quarter. All the banks are likely to come out with fairly reasonable earnings over the next couple of days. They are going to benefit from a rising interest rate environment. Security prices are a lot higher, so capital markets are doing a lot better. Dividend increases continue and he sees that continuing. (See Top Picks.)

Stock split? There is nothing out there that says they are going to do a split, but historically, when their stock becomes very pricey i.e. over $100, they tend to do a split. We are starting to see a lot of bank stocks getting to the $100 type level. It makes it easier for investors to buy stocks, but they are still buying the same stock.

All Canadian banks had a great run. It has been well warranted, because the credit concerns that had been present because of Alberta, haven’t materialized. One of the better positioned Canadian banks on the resurgence of the capital markets. Feels their intrinsic value is not as high as most people think, and the quality of their underlying earnings is not as high as those of the more securing banks that are focused on consumer activity. However, this is poised to have a good year. If the US economy continues to deliver as it has, this is probably going to be one of the better banks. He is a bit cautious on the overall banking sector because they have had a tremendous run up and Price to Book has really increased.

The banks have been on fire and everything has been working for them – oil, housing, etc. They come out with earnings tomorrow. It is trading into expectations for that. The seasonal period is until mid-Apr. Until it breaks some sort of level you should hold on to it.

This is not at the top of his list. They’ve tried to move into the US to a degree, but are a little behind. TD (TD-T) has probably got the best footprint in the US if you want to run with the US banking system. With the Dodd-Frank act coming off the table, he thinks US banks will do better than the Canadians. However, the Royal is one of the biggest banks and the safest.

A well-run bank. All the banks have had a very good run since the US election, but are all looking a little pricey. However, with a long-term view, the banks will continue to do well. This is the leader in many respects. Thinks the wealth management side will have some margin pressures this year, as their investment advisors have to start disclosing how much they are charging their clients in terms of fees. Investment banking is under pressure. The M&A advisory business is getting very competitive. Americans are starting to come up here more often. The bank has a big business in the US, which is doing very well. On the lending side, he doesn’t think Canadian banks can continue to pile on debt on to Canadian consumers like they have in the last 20 years. Dividend yield of about 3.3%. Thinks this could correct back down to the low $80s in a nasty market.

Canadian Banks? They’ve had a very good 2016, but remember that 2015 was a negative year for banks. They were down about 11% on average because of concerns on energy, housing crisis, etc. Earnings were revised upwards and multiple expansions back to historical averages. She still likes them, because she is constructive on the Canadian and US economy. Her long-time favourites have been Royal Bank (RY-T) and Toronto Dominion (TD-T), and also owns Bank of Montréal (BMO-T). TD and Royal have exposure to the US with TD at about 25%-30%, and Royal at 22%. Thinks Royal’s is going to increase as they are now integrating City National. These both are trading at reasonable valuations.

(A Top Pick Oct 8/15. Up 31.45%.) If your time horizon is 3-5 years, this would still be a Buy, maybe a 3^rd of a position. All the banks will benefit from rising interest rates, because they will be able to expand their margins over time. (See Top Picks.)

(Market Call Minute.) Banks have had a huge run up, and you have to wait for a pullback before you pull the trigger.

She chose this to reflect her view that the Canadian economy is recovering. Energy problems are largely behind them. Even though bank stocks have done very well this past year, previous sentiment had been so negative on the sector, valuations are extremely attractive. The acquisition of City National enhances its US presence with high net worth clients and commercial banking. On a 10-year average, this is trading at a BV of 2.4X, and is currently at 2.1X. Dividend yield of 3.67%. (Analysts’ price target is $91.28.)

The seasonal period for banks is from October 10 to November 27, which would have worked out very well this year for this bank. It broke out above its previous high back in 2014, and is now in no man’s land, i.e. it is still going up. He looks for this one to do well once again from January into mid April.

Buy Long Term Call on Royal Bank. He likes the Canadian banks and thinks there is quite a bit of runway ahead of them. This gives you a great dividend. This comes back to the low interest rate environment. Call options get lowered in price, because interest rates are low relative to the dividend that the Bank is paying. He would Buy out to January 2018.

Take some profits? If you are a short-term trader, he would take some money off the table. However, he thinks this is a core holding for the long-term.

(A Top Pick Dec 17/15. Up 19.67%.) A year ago, there were concerns about the energy patch impact on Canadian banks, and where the Canadian economy was going. Wait for a pullback before you add or increase your position. Still trading at about 2X BV, with a yield of just under 4%.