Royal Bank (RY.TO)

Just reported earnings and he hadn’t expected them to be as good as they were. Feels they have the dominant franchise of the Canadian banks, whether in capital markets or retail. Has been expanding recently in the US with its acquisition in California. If you are going to hold this for a few years, you are still going to do well even though it is up rather sharply today. Yield of 3.96%.

They issue common shares, preferred shares and corporate bonds. Does technical analysis apply equally to all 3 types, and do you use different technical indicators? It is hard to get data on bonds, so basically you just look at the rates. Banks have had an A, B, C correction, so they should rally, at least back to the old highs, because no Bull market exists without the leadership for the participation of the financials.

Pulled back with the general sector, but also pulled back with the recent announcement of the City National acquisition. They paid a very full price for that asset, but City National has a strong presence in 2 very attractive areas, high net worth and commercial lending, and is located in Los Angeles, New York and San Francisco, where there is a very high concentration of net worth individuals. Dividend yield of 3.94%.

It is very common for a person to have 40%-45% of their portfolio in bank stocks. They are great long-term investments. However, as we get late in a cycle and head into any kind of downturn, financials will often lead us there. Things that could lead to weaker earnings in banks this year is that 1) Western Canada is going to have a little bit of a mortgage hit and 2) banks that have done lending to oil/gas companies are probably going to have a bit of a hit. Generally speaking, he thinks the banks are going to have an off year this year. However, they are doing well. If you are sitting with $50,000 of your $100,000 in bank stocks, then lighten up and perhaps take $5000 off the table, and sit on cash for a while.

Recently got a downgrade. The problem is the whole oil economy we are in. Technicals show it is breaking down, along with the banks. Technically it is not a buying opportunity. There is a seasonal tendency for markets to firm up in the latter half of February. As and if that happens, there will probably be a bounce on everything, and that could be your exit point for shorter to midterm traders. If you are long term trader, the banks are generally pretty good, but you may go through a lot more volatility before you are smiling again.

Do you think this and other banks are in for a significant tumble, and should they be sold now? Canadians historically have very, very large exposure to debt. It would have to be really, really bad for a significant period of time for the banks to have to cut their dividends. Their payout ratios are fairly reasonable. They continue to be well capitalized from a global perspective. The biggest risk that Canadian banks have is to car loans and small businesses, particularly out West.

Just acquired City National out of California for $5.4 billion. Seemed a little expensive to him, but in wealth management you are paying a premium price. He likes this name long-term. Great franchise and you are getting a 4% dividend with a 6%-7% dividend growth over the next little while. Canadian banks are fairly valued at this point. A lot of the questions surrounding banks over the next little while will be, how far do energy prices fall and how does that affect the housing market.

Has some US business, which is a benefit to them. This has pulled back an awful lot here, and discounted a lot of the capital markets side. The next couple of quarters won’t be great in that area, but will be a year from now. Dividend yield of 3.89%.

This is really a wealth management bank. For Canadian banks as a whole, it is the future growth in mortgages. Basically the banks have grown at a rate that was double the GDP for a long time, predicated upon a strong Canadian housing market and increased accumulation by Canadians. These 2 things are definitely going to slow. The recent pullback is a good entry point.

There are a lot of worries on banks right now. The energy sector and the debt associated with it has created some concern. Relative to utilities, pipelines and telcos, banks are very cheap on an earnings basis. Relative to other banks globally, they might be a little bit expensive. He doesn’t think any of the Canadian banks, even in a bad housing market, oil market or both, will be cutting their dividends. At a 3.5%-4% dividend yield, they are in line with other dividend payers, and thinks they are going to be alright, so holding positions in a bank is going to be a good thing to do.

This bank or US banks instead? In the last year or so, he has employed the strategy of going into US banks. This is because he has a better view of the US economy and US consumer than he does of the Canadian consumer. Believes the Canadian economy underperforms the US economy by 50 to 75 basis points of economic activity. This bank has a very good franchise, and you buy this for its diversity across 3 businesses, the retail bank, the wealth management division and capital markets. Strong Canadian base with a strong US presence. It should do well.

(A Top Pick Jan 7/14. Up 12.19%.) Likes the group and this is one of the 3 that she favours within the group. Likes their diversification across all their businesses. It tends to trade at a premium to the group, but it has a high ROE, and with the pullback it is trading at about 11.5-12 times earnings.

He is not a fan of the big 5. He only owns BNS-T because it has the least exposure in Canada. He worries loan growth will stall, capital markets are not the place to be and worries about exposure to energy companies. He worries about exposure to individuals in areas where there is a lot of energy business. The layoffs are just starting to happen.

You can hold Canadian banks for a long period of time. They have done very well and have great yields. Dividends get increased fairly constantly. Doesn’t see any reason to run from these because they are going to pick back up again after this little downturn is over.

Likes this bank and the outlook over the next year. This is the largest bank in Canada, and probably the most diversified in terms of capital markets, retail banking, insurance, etc. They are a major player in all of the areas that they participate in. Despite that they trade at a bit of a premium to the rest of the group, he wouldn’t hesitate to invest in this.