Toronto-Dominion Bank (TD.TO)

A serious long-term buy for people who speculate on things for serious stocks.

Canada has a banking oligopoly. This is the 2^nd biggest bank in the country. Has a very strong, dominant domestic franchise and a well positioned asset management franchise. They have a large and growing presence in the US. With interest rates hikes that are occurring in the US, the likelihood of them improving their net interest margins, and ultimately their profitability, is very good. Dividend yield of 3.7%. (Analysts’ price target is $71.)

This closed at $65.31, and his model price is $76, a 16% upside. Pays a nice yield of 3.67%.

He normally wouldn’t look at banks because their ROE is lower than the 20% cut-off that he likes to see. He owns this bank and the Royal Bank (RY-T). The banks will give you your 10%-15% long-term rate of return.

US banks have rallied, benefiting from the stress test, and are able to return more capital to shareholders, but that has never been a problem for this bank, which is why they have not benefited. However, deregulation as it is happening is going to benefit this bank also. As well, this bank has its great Canadian franchise and having a good balance between the US and Canada is a good place to be. 3.7% dividend yield.

If he were going to buy a bank, it would probably be this. He likes the retail focus, and it has far less exposure to Canadian mortgage market, and a lot less exposure than some of the other banks to energy lending. A good, steady, bread-and-butter business. With their exposure to the US, it should give them exposure to rising interest rates and improve their net interest margins.

Unlike some of the other Canadian banks, this doesn’t have much uncertainty around its US strategy. If there is one thing this bank does exceptionally well, it is retail banking. They have the formula and they have the model. Although they have rolled out in the US branches, he believes it is still in the early days and there is still lots more to go. Dividend yield of 3.7%. (Analysts’ price target is $71.)

The Canadian bank that is exposed by about 50% to the US, so you get good diversity. It has lagged a little. Canadian banks are marginally down for the year, and this one is well off its peak. He thinks it goes back to its peak as we calm down about Home Capital. He is looking at a total return of about 14% for the year. Dividend yield of 3.7%. (Analysts’ price target is $71.)

Toronto Dominion (TD-T), Bank of Montréal (BMO-T) or Bank of Nova Scotia (BNS-T)? He likes the financials. In Canada, the banks and insurers have underperformed the rest of the sectors this year. Rising interest rates is good for banks. This has about 60% of its revenues coming from Canada. Scotia has a lot of revenues coming from international markets and is a good name. He would prefer a combination of TD and Bank of Nova Scotia.

Banks are trading at 11 to 13 times earnings, which has been their historical range, while grocers are trading at 17 to 18 times earnings. He can’t figure out why the grocery business warrants a 5-point multiple over the banking business given the regulatory structure and the difference in dividend yields. Dividend yield of 3.7%. (Analysts’ price target is $71.)

The Canadian market has come off about 5% from the highs. This is why the banks are off from earlier in the year. There is definitely risk around real estate and the Canadian economy. Banks are much more attractive at the level they were at about the time of the Trump election and there is a risk they will go there again.

He likes their PNC business, the efficient quality of their loans and the efficiency that they are running their affairs. They are very focused on cutting costs and making the whole organization more efficient. The quality of their credit losses is one of the best of the bunch. Also, likes that they can innovate with new marketing, especially in the US. Dividend yield of 3.7%. (Analysts’ price target is $71.)

(A Top Pick May 27/16. Up 17%.) Banks make a great, solid part of your portfolio. Dividends are okay and they increase on a regular basis. He likes this bank, particularly because of their expansion into the US. A little disappointed that it has not paid off recently, but he understands they are reorganizing in the US.

Canadian Banks should be in a relatively decent position to exhibit mid-single digit to potentially high-single earnings growth during the next few years. Relative to the US banks, the challenge is that Canadian consumers are highly leveraged, so there will be less loan growth. This bank is one of the names that he likes. They have an under leveraged deposit base in the US, which they can use to affect a significant increase in earnings.

Toronto Dominion (TD-T) or Bank of America (BAC-N)? Bank of America is not one of his favourite US banks. He would rather own J.P. Morgan (JPM-N) or Wells Fargo (WFC-N). Between these 2 banks, he would rather own Toronto Dominion.