Royal Bank (RY.TO)

Likes the banks generally. They are core long-term holdings. You are not looking for stocks that are shooting the lights out in this particular case. He looks for a decent yield (3.5%) and a consistent 5% growth rate for long-term total returns of 8%-9%. Banks will add stability to a portfolio.

Within financials, banks are his favourite sector. This one is very well-balanced in terms of geographic exposure and its blend between retail, capital markets and wealth management. However, he prefers US banks as he likes their recovery.

One of the great things about Canada is our banking system. In the long-term, it is very hard to do better than the Canadian banks. However, there is always the game of “which one”. He has been in and out of this one over the years. A very solid bank although they didn’t have as good adventure in the US. At the moment Toronto Dominion (TD-T) is his favourite.

It is in an upward trend, trading above its 20 day moving average and outperforming the TSX. Banks are seasonally strong until the end of May with the reporting of second quarter results. Stick with it and buy it on weakness.

(A Top Pick May 7/13. Up 22.76%.) Still likes and likes the banks as a group. Earnings growth is in the high single digits and feels the share price should reflect the earnings growth. Pays a dividend of just over 3% which gives you a 10%-12% total return.

He has 11%-12% total shareholder return over the next 3-5 years. This is estimating what the dividend growth and capital gains will be. Has it with the highest PE of any of the Canadian banks which he feels deserves it.

A very high quality financial institution for a long-term investor. Very well run. Pays a nice dividend. If you are going to Buy and Hold it for a long time, you are not going to go too far wrong. Feels the US banks overall are cheaper on a valuation standpoint and have more earning potential than Canadian banks. Canadian banks are trading between 11 and 13 times earnings while US banks generally trade at 10X and have a better earnings growth profile because they are recovering from a lower base and a big improvement in housing.

He is anticipating a pickup in M&A activity with a shift from bonds to stocks. This tends to be very good, especially for a company like this with their large wealth management component. From 2012 to the present, the chart has had a nice uptrend. It was a consolidation level around the $60 and $70 levels, but it is breaking out. Use $70 as a Stop. He can see this going to $80. Yield of 3.87%.

(A Top Pick April 9/13. Up 26.66%.) Has a nice mix of business. Banks are trading at about 11 or 12 times forward earnings. Earnings growth is going to be in the high single digits so she thinks they can grow their share price at that level. Recently increased their dividends by about 6%.

A great story going forward. 50% in the non-interest spread business. Came off a little recently because of some allegations of mess-ups in the states so now is the time to buy them.

Canadian banks are quasi-monopolies so you have to have them as Canadians. This one is the largest. He questions its exposure into the world of capital markets, where they have been very, very strong. They continue to do well in this area. Has a great yield and nice growth ahead. A classic core holding that you never really sell. This is one of the top banks in his list.

Caller asked about pairs trade. You cold short BNS and long RY because of Latin American exposure. He would go long a US bank and short a Canadian bank as a pairs trade.

Canadian Banks. Last year they ran well. They became compressed in the spring time because of housing market concerns. We are in the seasonal period for banks and next week is ‘bank week’ when earnings come out. There is still a lot of talk about houses being overvalued. Banks trade off that sentiment to some extent. It put in a couple of small bottoms and is now breaking through so this is a positive sign. Watch it does not roll over.

In the long run Canadian banks have been excellent investments and probably will be. Right now he prefers banks outside of Canada. The biggest driver in Canadian bank earnings has been the consumer. Consumers leverage themselves up in the mortgage business and he feels this has pretty much gone as far as it is going to go. However, US and European banks, which got hit very hard in the financial crisis, are now growing their earnings and dividends faster than Canadian banks. For a long-term investor, this is a great investment.

Wonderful run. RY is the big capital markets bank. Thinks it will split soon.