Royal Bank (RY.TO)

Trading at around 10X forward earnings. Has an amazing Canadian retail franchise and an amazing Canadian wealth management franchise. Its wealth management franchise in the US is bigger than it is in Canada now. Has an exceptionally strong capital markets franchise. The new CEO really gets technology. Thinks the banks are going to be one of the biggest beneficiaries of technology. It’s a threat for them, but also a huge opportunity to bring down their cost structure. Dividend yield of 4.29%.

Canadian Banks are levered to the Canadian economy, which is levered to the energy sector. The uptrend was broken and you are now in a consolidation pattern. It had a lower high and is very much in danger of putting in a lower low.

She likes the sector. She thinks Canadian banks are undervalued. We are seeing a pick up in the Canadian economy in terms of employment numbers. It is trading below its historical level. 4.3% dividend. As earnings grow they will increase their dividend.

Has been the “go to” name for a long, long time in the Canadian banking sector. If you are looking for income, this is a great time to buy it. If you are trying to time and trade it, and you have extra cash and looking for yield, this is about as good a place as you can go to get it. (See Top Picks.)

The banking sector is an oligopoly in Canada, and is doing very well overall. Lately performance has been somewhat lacklustre because of the concern of the overall general Canadian economy, partly oil prices and partly because we are seeing a near technical recession. There is some concern about the near term growth and near term loan losses, but if you look beyond 12-18 months, all these names should be accumulated.

The newly issued perpetual preferred shares? Perpetual shares are like a long-term bond. They are out there forever at a set rate, so it depends on where you think interest rates are going. In the near term, Canada has been trending down in contrast to the US. Eventually US rates are going to be moving up. As the Canadian economy hopefully starts to gain some momentum, rates should be going up. When interest rates go up, bond prices usually go down, so perpetuals are actually not the best thing to own in that kind of environment. In a rising rate environment, she would rather own Fixed Reset Preferreds, which get reset every 5 years.

One of his two favourites (see Top Picks). Others came off double digits. It is behaving very well technically. They will do well building on their wealth management in the US and Canada. The banks are a core holding and this is one of two.

Stock vs. Stock. RY-T vs. TD-T. For the first time in a decade, TD-T has moved into the top three on a 10-year performance basis. RY-T is first, however. Everything they are doing is based on 10 year ago investments. TD-Ts US investments are only just starting to get hold.

Certainly a good blue-chip pick in Canada. He favours US large cap banks today over some of the Canadians, but of the Canadian banks this one is reasonably well positioned. Has a strong franchise and an excellent capitals market business. Conservatively managed. Nice dividend.

He likes the Canadian banks by and large. RY-T is the most expensive amongst the banks. There is a good reason, it is the best quality.

(A Top Pick June 3/14. Up 9.3%.) Reported their quarter with a surprise to the upside. Capital markets did a bit better than expected. Thinks the Canadian economy will slowly improve and doesn’t expect there will be a housing collapse. Earnings growth won’t be as strong as it has been in prior years, but she is expecting about 5% earnings growth.

Market capitalization is greater than the other banks. To what extent does this impact its potential for growth and downside risk? This is the biggest with its capital of over $112 billion. It is bigger in capital markets, retail and just about everything they do, relative to the other, but that also has brought in some degree of stability. Represents fairly good value with an almost 4% yield. Not a bad place to have your money.

Royal Bank (RY-T) or BCE (BCE-T)? In terms of one or the other, it is hard when it is in such a divisive space. This one has a good wealth management platform, where he thinks growth is going to continue. One of the better positioned banks. Both companies pay good dividends, and both are best of breed. If you had to pick one over the other, it would be BCE for the short term.

He buys a basket of banks. All the Canadian banks are doing fine in this environment. The days of 10-15% growth are over, but you will see nice 3-7% now.

Royal (RY-T) or Bank of Montréal (BMO-T)? His 3 biggest holdings are National (NA-T), Toronto Dominion (TD-T) and Bank of Nova Scotia (BNS-T). On a valuation basis, the cheapest is National which is trading at 10X next year’s earnings. On this, pick 1 or 2 banks, and never sell them and then go from there.