Royal Bank (RY.TO)

(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.

One of the leading financial institutes in Canada. The Canadian banking sector has underperformed year to date. This one is relatively better positioned, compared to some of the others. He would suggest you look at US financials instead, where PEs are trading at lower valuation levels, than Canadian banks. If you own this, you are probably not going to go too far wrong.

Just announced an acquisition a few months ago. This is very big on the wealth management side of things. That can be lumpy, but hasn’t been in the last little while. In Canada, a large part of the banks earnings have been mortgages, and banks have grown at a rate of double GDP. That can’t continue forever. The banks pay good dividends and they don’t get cut. His preference would be Toronto Dominion (TD-T) followed by Bank of Nova Scotia (BNS-T) followed by this bank.

Has been down recently due to markets being very jittery, particularly the ones that are interest sensitive. Canadian banks are going to be facing a bit more pressure from a net interest margin perspective, particularly because the Bank of Canada cut its rates recently. However, if the US is going to be raising its rates on a go forward basis, companies that have exposure to US revenues stand to benefit. This is a very strong business in terms of its capital market prowess, as well as their ability to drive into wealth management businesses as well. Valuation is compelling. (See Top Picks.)

Which Canadian banks are you bullish on? She doesn’t have heavy weightings in banks right now, but if she were to be adding one this would be her favourite. Missed in the 4^th quarter, but thinks that was just year-end adjustments. Have an attractive wholesale US business which you benefit from.

Just reported and their strength was on the domestic retail side, a little stronger than what people thought it would be. Margins are actually up a snick, where it was thought they would be down. Capital market was a lot stronger than people were expecting. Good yield of 3.95% which is likely to be increased 3%-4% later in the year.

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.