Opinions
Christine Hughes
Toronto Dominion
TD-T
COMMENT
Sep 17, 2014
Stock price when the opinion was issued
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With the money laundering scandal, she trimmed. Still has US operations, so will benefit from capital markets activity. Can focus on its Canadian operations. Kept it because of its very attractive valuation and yield. Can still grow in other areas; US retail represents only 25% of earnings. Very strong balance sheet, can use it to buy back stock.
The issue was in the U.S. resulting in a big fine but that is now out of the way. TD now has an opportunity to get rid of businesses not giving a good rate of return and an opportunity to do a better job than other banks. It has more exposure to the retail side. Also volatility helps investment banking. TD is under the microscope.
Beat today, strong capital markets, strong trading especially in the US. Shrinking balance sheet to comply with US regulators. Earnings estimates for all banks have come up a lot. All banks will go higher if no tariffs and our economy stays good, though TD will probably participate least. In the penalty box.
If tariffs go on and stay on, credit loss provisions will go up quite a bit. Only buy if you feel tariffs aren't going to happen.
Canadian personal and commercial businesses are excellent and dominant. US business is a fixer-upper, and they will. Wholesale business is subject to the vagaries of the capital markets. Wealth management is quite good. Watch DIY investing, as it seems to be doubling down on growth aspirations. Liked the Schwab sale; using proceeds to buy back shares. Dark clouds are finally parting.
It has had a good jump from last fall and the upside now is pretty gradual with the earnings upside in the last quarter being pretty flat. It is upgrading what they have and re-investing into higher yield products for better portfolios. Upside could start next October close to the fiscal year end.
Held up fairly well all things considered, as money's rotated out of large-cap financials. Support is around $74 with the December retest. Bumping up against resistance close to $86. That's the range, and we're waiting to see if it goes through. Financials have started to struggle, so this could go either way.
With your bond background, how do you approach a stock like this? Her approach to this is the same as her approach to any stock. It is whether or not the risk area of the market is a good idea at the time. You have to deflect to the bond market and not to the earnings for this bank as that is backwards looking and the bond market is dynamic current and forward-looking. If we are in the stage of the cycle that is positive for equities and the bond market is supportive of that, it means the banks are making money. She likes this bank.