Royal Bank (RY.TO)

Banking sector finds seasonal strength from August all the way through to December. Has a bit of a rough patch in December with earnings coming out at the beginning of the month. You probably want to avoid this at this time. The bank stocks are priced to perfection. There is another period of seasonal strength into the 1^st and 2^nd quarters, from January all the way through to March and April. If you own, consider taking your profits before the earnings come out.

Which Canadian bank would you recommend? In his private client business, he owns the Royal (RY-T) and Toronto Dominion (TD-T). He thinks these are the 2 best banks in Canada with the best opportunities. They’ve done incredibly well and he thinks it will continue to do well. Not expensive. You get a great yield and thinks you will get an increase in the payout ratio for these companies. There is a great opportunity for them to trade at higher multiples than they are currently. More than half their revenue comes from the US now.

There is a lot of money flowing into the financial space again, probably because of the Short covering by a lot of international investors after their concerns about a Canadian housing crisis.

Chart shows a strong uptrend channel. Basically whenever you look at a chart like this, it is in an uptrend, and you don’t argue with it. The banks as well as a lot of stocks are a little overbought. There may be a pullback as the price may be approaching the top of the trend channel and he would probably add if it dropped to the bottom of the trend channel.

(Market call minute.) Hard to fight against bank momentums of this size. Pays a great dividend.

Has not been adding to his holdings recently. Canadian banks are relatively inexpensive right now. Earnings are starting to turn back up. You have big US Short sellers that are starting to cover, which is pushing the stocks higher. (See Top Picks.)

Not a good time seasonally at the moment. But this one is still in an uptrend. Stick with an uptrend when you have one. Usually best starting October of each year.

(Market Call Minute.) Likes this but it is at its 52-week high so Buy on weakness.

All banks are reasonably valued now. Royal has now run up so he would look at others. Today you are getting almost 4% and they have captured some of the discount from a year or so ago. Would not add to position.

Where would you buy this stock, through Canada or the US? Doesn’t think there is any particular advantage. You might even find yourself at a disadvantage from a tax point of view if you held it in the US.

Seasonality of Canadian versus US banks? Seasonality is similar for both. Canadian banks have their run from October into December and then from January into April. However, Canadian banks pay a higher dividend so they are little bit more defensive. A lot of Canadians have a large portion of their accounts in banks but this is not the time that the banks tend to run so it is a defensive sector. This one pays 4.1% dividend.

Likes Cdn banks. This one blew the pants off all the other banks on the last quarter. Strong balance sheet. ROE in the last 12 months is up about 20%, not including dividends.

Banks have pulled back and a lot of this has been driven by misinformed speculation in the US, as to the condition of our housing market and the vulnerability of the banks to the mortgages. They don’t really understand how our mortgage market works. Loan to Value ratio overall, there is a 3^rd or more of equity. This bank is very strong, not only in retail banking but also has a very strong presence in capital markets. Earning about a 19% return on equity. Dividend yield of about 4.3%.

This would be his 3^rd favourite bank of the big 5 Canadian banks. This is down for a macro reason. There has been a story of US Shorting of Canadian banks because they misunderstand how our mortgage/loan book works. Banks are pretty good value at these prices. (See Top Picks.)

Although he owns some, it’s not his major bank holding. If you own, consider switching to Bank of Nova Scotia (BNS-T). His only complaint about this one is the lack of exposure outside of Canada.