Opinions
Chris Blumas
Toronto Dominion
TD-T
BUY
Oct 16, 2024
Stock price when the opinion was issued
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Won't be an immediate fix, but remember that the market is a forward-looking, discounting mechanism. Q2 earnings results were much better than expected. Biggest segment is Canadian personal and commercial banking, and that missed expectations. Sizeable outperformance in US retail, strong outperformance in wealth management, did very well in capital markets.
Most over-capitalized bank in Canada. Will be buying back a lot of stock. Working hard to remediate money-laundering deficiencies in US. All its plans should help to rebuild investor confidence and restore its premium multiple.
The company is recovering from its US indiscretions, and recent earnings were good. Credit quality remains good, and recent cost-cutting efforts may help offset any potential economic weakness. The stock remains cheap with a good, secure dividend.
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It's the best Canadian bank performing so far this year, but the worst in 2024. Their US problems are not yet behind them (they have to work through the asset cap, part of the penalty for money laundering). They have limited growth in the US, but also won't need capital to grow. So they could buy back shares. TD trades at a discount, so he likes this for the long term.
Stock's rallied simply because of the big selloff when $3B fine was announced. Still in penalty box in US -- can't grow their business there, so where are they going to? Only thing left to buy in Canada is LB, and no one seems to want it because it's mainly commercial mortgages. Wants a bigger footprint in digital, so it's laying off staff.
Don't buy here. US growth overhang could last a number of years. Not a lot of upside.
This situation highlights a massively important point. When these high-index component companies trip and do a faceplant, they get massacred. Everybody jumps on the hate train, and all you hear are negative comments. Looking at the chart, stock's probably up 25% this year from the point of peak negativity.
The biggest source of return in any investment is the change in the multiple. TD can still grow at a low single-digit rate, and then the multiple rerates. It went from 9x PE to 11.5x PE. Now slightly above his buy price. Excellent job righting the ship, and it was all the excess capital that was the key.
Longer term will do reasonably well. For those looking for income, and you get a bit of earnings growth. The big longer-term question is whether it stays in the US or not. Unlikely to commit additional capital to build out its platform in the US.
Past high back in 2022 was around $108. In the doghouse until May of this year. One of his biggest positions. He's riding the wave. Could break above $100 very easily, and $108 isn't out of the question. Momentum is peaking right now, but he's seeing a drop in volume (which indicates sideways motion or pullback). Be cautious, it's overextended.
If it dropped back to $90, he'd definitely consider exiting.
Pleased to see how the market's revalued it higher. Light at end of tunnel after regulatory scandal. Trying to reset the growth algorithm by September 29 investor day, which gives the new CEO time to assess things.
Great Canadian personal and commercial banking franchise. Good and growing capital markets. Good scale player in wealth and asset management. Still one of the largest banks in the US; growth will be challenging, but he has faith in its creative strategies.
In a tough spot, media has made it the whipping boy. Every single US bank has problems with money laundering, it's so pervasive. The fine came at the best time, as it was sitting on the most capital of any Canadian bank. Everyone knew what was coming, stock's been drifting lower for quite some time.
He owns it for the income, not the growth. He'd plug your nose and buy here, knowing it could go a bit lower. No one wants it on their books so there's been indiscriminate selling, which creates the value for you.
Compare this to WFC, which was in a whole heap of trouble due to problematic sales practices. Return since then is ~150%. The TD scenario is different. In these mature type of businesses, you'll get your dividend and a small bit of earnings growth. TD now has the lowest multiple of any Canadian bank, but will that be the case in 5 years? They all re-rate, and he thinks this will end up being quite a good return.