Royal Bank (RY.TO)

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%.

There is nothing special about this bank. It’s the biggest in Canada, but if you look at Bank of Nova Scotia (BNS-T) you can point to international exposure. National Bank (NA-T) has Québec locked up. Toronto Dominion (TD-T) has a bank on every corner in New York City. Bank of Montréal (BMO-T) made a big acquisition in Chicago. There is really nothing to distinguish this one from the crowd. It steady, it’s solid and it’s boring. It’s going to pay its dividend and its going to raise its dividend. Don’t expect the stock price to take off though.

Canadian banks have been the place to be. Continue to hold it.

This doesn’t have the highest growth rate, but has a pretty good one. Bank of Nova Scotia (BNS-T) has the highest at around 8% over the next couple of years. He is modelling 6% for this. Very high capital ratio. One of the catalysts that Royal has is that it has not had restructuring plans like the others, but if they do that, the market will be rewarding it.

Disappointed the street a little in the 2^nd quarter, relative to the other banks, but that is a short-term thing. A very, very well-run bank. There acquisition of City National makes a lot of sense and will add value over time.

Canadian banks have shown their resiliency and good risk management in this energy downturn, and have come out of much better than what people expected. Most of the banks have been taking big restructuring charges lately, consisting mostly of severances that they have been paying. This bank has not done that. They have been taking small charges every quarter, but they left that in their adjusted earnings, which means their earnings quality was quite good. Have reduced their Canadian tellers from 11,000 to 6000. They are the most efficient bank in digitalization, so they have the lowest cost of production. Also, their provisions for energy loans were much higher than what they needed to take, and those provisions could come back into earnings in the next few years.

If a long-term investor and looking for safety, you really can’t go much further off to meet the guidelines you are looking for with Canadian banks. They have a good yield and tend to grow it over time.

(A Top Pick Aug 11/15. Up 9.96%.) She had thought energy exposure would be a real issue, but the banks seem to have worked around that, and hopefully the worst is behind us in regards to energy. The banks are trading at very attractive multiples. This has a yield in excess of 4%. Still a Buy.